Why Did United States Steel Stock Drop?

United States Steel stock (NYSE:X) dropped nearly 6% during Wednesday’s trading, accelerating the losing streak from the past week. Nippon Steel Corporation, Japan’s largest steelmaker, set out to acquire United States Steel in December 2023, but has faced still opposition from both U.S. Presidents Joe Biden and President-elect Donald Trump. Incidentally, the stock is currently trading 10% higher compared to a year back, indicating it has been a volatile period for United States Steel stock, having reached almost $50 post the acquisition announcement last year. The enthusiasm around the stock was, however, short lived as the deal soon faced opposition from multiple fronts, with President-elect Trump vowing to block the deal if he gets re-elected. Last week, Nippon Steel’s Vice Chairman and Executive Vice President Takahiro Mori, stated in a press conference, that they believe that they can conclude the deal before the end of the year.

Amidst the uncertainties surrounding the acquisition, United States Steel performance in the recent results were far below expectations. 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.

Admirably, X stock has generated better returns than the broader market in each of the last 3 years Returns for the stock were 42% in 2021, 6% in 2022, and 96% in 2023. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, is considerably less volatile. And it has outperformed the S&P 500 each year over the same period.

Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride as evident in HQ Portfolio performance metrics. Given the current uncertain macroeconomic environment around rate cuts and multiple wars, could X see a strong jump?

Does X stock look attractive?

Trefis analysis of the stock considers the two distinctive scenarios of the the deal going through or not. Even in the scenario where the deal is rejected, Trefis estimates that the fair value of the stock is around $40. On the other hand, if the deal succeeds the company would benefit from the synergy of the resulting business, and the offer price of $55 seems like a reasonable estimate of the post acquisition valuation.

Moving forward, notwithstanding the deal, United States Steel’s financial performance has been impacted by softening metal prices, which the company has tried to counter balance with cost control initiatives. Any improvement in steel prices or an improved product mix with value added products would be a key determinant of the trajectory of the stock, going forward.

[1] Returns as of 11/14/2024
[2] Cumulative total returns since the end of 2016

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