U.S. Steel Upgraded to Strong Buy

On Jan 18, Zacks Investment Research upgraded steel company United States Steel Corp. (X) to a Zacks Rank #1 (Strong Buy).

Why Upgraded?

Though U.S. Steel incurred loss in third-quarter 2013, as reported on Oct 28, due to a hefty impairment charge, adjusted loss was narrower than the Zacks Consensus Estimate. The company has delivered positive earnings surprises in three out of the last four quarters with an average beat of 15.47%. U.S. Steel’s long-term estimated earnings per share growth rate is 14.4%.

U.S. Steel’s Flat-rolled segment posted a profit of $82 million in the third quarter compared with a profit of $29 million in the year-ago quarter and a loss of $51 million in the second quarter of 2013.

The company is actively engaged in improving its cost structure and sustainably increasing revenues through its “Project Carnegie” initiative, which includes measures like shutdown of operations. These efforts are expected to deliver over $75 million in cost improvements annually.

U.S. Steel is experiencing strong demand in the automotive space. In early 2013, the company collaborated with specialty alloy maker Carpenter Technology Corporation (CRS) to develop lighter high-strength steel for automotive applications. The association will generate growth opportunities in the automotive market.

Further, in May 2013, U.S. Steel and Japan’s Kobe Steel commissioned a new continuous annealing line at their joint venture, PRO-TEC Coating Company. The 500,000-ton PRO-TEC continuous annealing line will produce the next generation of Advanced High Strength Steels (AHSS) and Ultra High Strength Steels (UHSS) having the superior strength, flatness and formability which were earlier unavailable at these levels.

U.S. Steel is also 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. The company is also expanding its coke-making capabilities. It has taken a number of steps in order to ensure long-term access to high quality coke for its blast furnaces.

Other Stocks to Consider

Other players in the steel industry worth considering are Companhia Siderurgica Nacional (SID) and ArcelorMittal (MT). Both carry a Zacks Rank #1 (Strong Buy).