U.S. Steel Raised to Neutral - Analyst Blog
August 09 2013 - 7:00PM
Zacks
On Aug 7, we upgraded largest integrated U.S. steel producer
U.S. Steel (X) to Neutral. While the company
remains challenged by weak steel market fundamentals, it should
benefit from lower raw material costs in the third quarter.
Why the Upgrade?
U.S. Steel turned in a loss in second-quarter 2013, reported on Jul
29. But loss per share was narrower than the Zacks Consensus
Estimate. Revenues fell by double digits year over year and missed
the Zacks Consensus Estimate. The results were impacted by ongoing
pressures from the lockout at the Lake Erie Works. The company sees
improved results across its flat-rolled and tubular businesses in
the third quarter.
U.S. Steel is looking for opportunities related to the availability
of reasonably priced natural gas as an alternative to coke in the
iron reduction process to improve its cost competitiveness while
reducing its dependence on coal and coke in the long term.
U.S. Steel is also expanding its coke-making capabilities. The
company has taken a number of steps in order to ensure long-term
access to high quality coke for its blast furnaces.
Moreover, U.S. Steel is seeing strong demand in the automotive
space. Its partnership with specialty alloy maker Carpenter
Technology Corporation (CRS) to develop lighter
high-strength steel for automotive applications will usher in
incremental opportunity in the automotive market. U.S. Steel should
also benefit from lower raw material costs in the third quarter
resulting from a decline in iron costs.
However, macroeconomic concerns, slowing growth in emerging
markets, and a sluggish construction market are still weighing on
U.S. Steel’s prospects. Oversupply in the steel industry and
increased domestic imports still remain headwinds.
U.S. Steel currently carries a short-term Zacks Rank #3 (Hold).
Other Stocks to Consider
Other steel producers with favorable Zacks Rank are Nippon
Steel & Sumitomo Metal Corporation (NSSMY) and
Ternium S.A. (TX). Both maintain a Zacks Rank #1
(Strong Buy).
CARPENTER TECH (CRS): Free Stock Analysis Report
NIPPON STEEL CP (NSSMY): Get Free Report
TERNIUM SA-ADR (TX): Free Stock Analysis Report
UTD STATES STL (X): Free Stock Analysis Report
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