On Nov 14, 2014, Zacks Investment Research upgraded steel producer, United States Steel Corp. (X), to a Zacks Rank #1 (Strong Buy).
Why the Upgrade?
On Oct 28, 2014, U.S. Steel posted its third-quarter 2014 results. The company narrowed its losses as its sales increased amid stable steel market conditions in the U.S. The improvement came on the back of strong profits in the company’s Flat-rolled unit, supported by its Carnegie Way transformation efforts.
Net loss, as reported for the quarter, was $207 million or $1.42 per share, compared with net loss of $1,791 million or $12.38 per share recorded a year ago. Adjusted earnings of the company came in at $2.16 per share.
Revenues increased 11% year over year to $4,587 million. Moreover, all the three major business segments reported higher profits on a year-over-year basis in the third quarter, reflecting strong fundamentals. Both revenues and adjusted earnings beat the Zacks Consensus Estimate.
U.S. Steel has witnessed significant estimate revisions for both 2014 and 2015 since the release of its third-quarter results. For the current year, 6 estimates have been revised upward in a month, causing the Zacks Consensus Estimate to jump roughly 34.4% to $3.28. For 2015, 9 estimates moved north over the same time frame, lifting the Zacks Consensus Estimate by around 17.5% to $3.70.
U.S. Steel is exploring options to leverage its iron ore position in the U.S. Also, the company is looking for opportunities related to the availability of reasonably priced natural gas as an alternative to coke in the iron-reduction process. This will help improve cost competitiveness, while reducing its dependence on coal and coke in the long term.
U.S. Steel is also witnessing strong demand in the automotive space. The company, in early 2013, entered into a collaboration with specialty alloy maker, Carpenter Technology Corporation (CRS), to develop lighter high-strength steel for automotive applications. The collaboration will usher in incremental opportunities in the automotive market.
U.S. Steel expects results from its European and Tubular segments to increase sequentially in the fourth quarter. But income from operations is expected to fall in the quarter on a sequential basis due to lower results in its Flat-rolled segment.
Other Stocks to Consider
Some other companies in the steel industry worth considering include Nucor Corporation (NUE) and Steel Dynamics Inc. (STLD). Both of them hold a Zacks Rank #2 (Buy).
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