On Feb 6, Zacks Investment Research upgraded steel company U.S. Steel Corporation (X) to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
U.S. Steel, on Jan 27, recorded adjusted earnings of 27 cents per share in the fourth quarter of 2013 against a loss of 41 cents in the year-ago quarter.
For first-quarter 2014, the company expects total reportable segment and other business income from operations to increase moderately compared to the fourth 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. 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.
U.S. Steel is actively engaged in boosting its position in the energy tubular markets. We note that the shipments of the company’s proprietary semi-premium connection increased by nearly 70% in 2013. Moreover, the company continues to introduce new semi-premium and premium connections into the market. These initiatives will enable U.S. Steel to develop connections and capture the significant margin opportunities tied to these highly engineered products.
U.S. Steel expects strong demand in the automotive space. The company had entered into a collaboration agreement with specialty alloy maker Carpenter Technology Corporation (CRS) to develop lighter high-strength steel for automotive applications in early 2013. The focus of the partnership will be fuel economy and passenger safety.
Moreover, U.S. Steel and Japan’s Kobe Steel, in May 2013, 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) which will possess superior strength, flatness and formability that were earlier not available at these levels.
These better-quality steels offer customers critical design solutions as automotive companies minimize the weight of component materials to improve fuel economy while assuring passenger safety.
The funded status of U.S. Steel’s pension and OPEB plans has improved significantly due to the economic recovery. U.S. Steel’s total unfunded status at the end of 2013 was $2.5 billion, a $2.4 billion improvement from $4.9 billion at the end of 2012. Pension and OPEB obligations are a significant part of the company’s cost and capital structure and U.S. Steel expects its costs to be down over $100 million year over year in 2014.
In addition, U.S. Steel is actively engaged in improving its cost structure and increasing revenues on a sustainable basis through its “Project Carnegie” initiative.
Other Stocks to Consider
Other players in the steel industry worth considering are ArcelorMittal (MT) and Companhia Siderurgica Nacional (SID) with both holding a Zacks Rank #1 (Strong Buy).
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