U.S. Steel Company
VALUATION HIGHLIGHTS
- U.S. Flat Rolled constitutes 60% of the Trefis price estimate for U.S. Steel's stock.
- U.S. Tubular constitutes 23% of the Trefis price estimate for U.S. Steel's stock.
- European Flat Rolled and Tubular constitutes 16% of the Trefis price estimate for U.S. Steel's stock.
WHAT HAS CHANGED?
- Nippon Steel To Buy U.S. Steel
- Nippon Steel will buy U.S. Steel for $14.9 billion after it won an auction for the 122-year-old American steelmaker. The all-cash deal values U.S. Steel at $55 per share, representing a 40% premium. The deal is expected to close in the last quarter of 2024, subject to regulatory approvals.
- Latest earnings - Q3 2024
- U.S. Steel posted a worse-than-expected set of Q3 2024 results, with revenues and earnings being weighed down by weaker pricing versus last year. While the company's Q3 revenues came in at about $3.85 billion, marking a decline of 13% versus last year, adjusted earnings stood at $0.53 per share, down from $2.10 in the year-ago period.
- Near-term economic headwinds
- There are a couple of factors clouding the outlook for the steel industry. The U.S. Federal Reserve and other major central banks have been hiking interest rates. This could result in a hard landing for the U.S. economy, leading to lower demand from key steel consumers such as the automotive and construction industries. However, the Fed cut rates by 50 basis points in September 2024, the first cut in close to four years. There are also concerns about demand from China as its real estate market faces a big downturn. This could also impact the global steel market as China is the world's largest steel consumer.
- Potential impact of the federal government's infrastructure plan
- The U.S. government has planned to overhaul domestic infrastructure, focusing on transportation infrastructure. Once passed by Congress, implementing this infrastructure plan is expected to boost the steel demand sharply.
POTENTIAL UPSIDE & DOWNSIDE TO TREFIS PRICE
Below are key drivers of U.S. Steel's value that present opportunities for upside or downside to the current Trefis price estimate for U.S. Steel:
U.S. Tubular Products division
- U.S. Tubular Products EBITDA Margin: The EBITDA Margin for the U.S. Tubular Products division stood at -18% in 2020 although it rose to about 43% in 2022, driven by surging prices. Margins fell to 41% in 2023 owing to weak prices. However, we expect margins to stabilize at about 14% in the long term. However, if margins grow to about 20% by the end of the review period, there could be a 10% upside to our price estimate.
- U.S. Flat Rolled Products Average Price: We currently expect the average realized price for the U.S. Flat-rolled division to rise to $1,300 per ton by the end of the forecast period post the imposition of import tariffs on several importing countries. However, if the recovery in realized prices is less than anticipated and the division's average realized price recovers to $1,200 per ton by the end of the forecast period, it would represent a downside of around 5% to the Trefis price estimate.
For additional details, select a driver above or select a division from the interactive Trefis split for U.S. Steel at the top of the page.
BUSINESS SUMMARY
U.S. Steel is an integrated steel producer of flat-rolled and tubular products with major production operations in North America and Europe. An integrated producer uses iron ore and coke as primary raw materials for steel production. According to the latest World Steel Association statistics, U.S. Steel is the twenty-sixth largest steel producer globally.
U.S. Steel's operations have an annual raw steel production capability of 22 million tons, of which 17 million tons are located in North America and 5 million tons in Europe.
U.S. Steel is also engaged in other business activities related to steel-making operations, including transportation services (railroad and barge operations) and real estate operations.
SOURCES OF VALUE
Flat Rolled products refer to steel sheets and plates made by rolling processes. The various categories of Flat Rolled products include hot-rolled sheets, cold-rolled sheets, coated sheets, semi-finished bars and plates, and tin mill products.
The U.S. Flat-Rolled division is the most valuable division for the firm for the following reasons:
Largest revenue generating division
The U.S. Flat-Rolled division generated 60% of U.S. Steel's total revenues in 2023 and is expected to contribute 60% in 2024 as well.
Highest production capacity and sales volumes
The Flat-Rolled segment has an annual production capacity of 13.2 million tons. The division's steel shipments stood at 8.3 million tons in 2022 and 8.7 million tons in 2024, which would likely be 9 million tons by the end of our forecast period.
