Is U.S. Steel Stock a Steal… or Just a Raw Deal?

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United States Steel (NYSE:X), more commonly referred to as U.S. Steel, is over a century old and was once among the most influential American companies on Wall Street. Today, it’s a business on the brink with debatable growth prospects.

On the other hand, U.S. Steel stock has perked up in recent months and may be on the cusp of a breakout. The problem for prudent investors is that U.S. Steel’s future remains highly uncertain — even if the company looks like a prime buyout target.

U.S. Steel may be cheap even after the recent rally

Value-focused investors might be reluctant to consider U.S. Steel stock because it just rallied from $22.50 in August to around $36 in early December. Yet, before you pronounce judgment, bear in mind that a company with good earnings can still provide excellent value, even after a run-up in its share price.

Pick practically any traditional valuation metric, and you’ll surely find that U.S. Steel stock isn’t overpriced. For example, on a GAAP-measured, trailing 12-month basis, U.S. Steel has a price-to-earnings (P/E) ratio of around 8. For comparison, the sector median P/E ratio is approximately 17.

Furthermore, U.S. Steel compares favorably to the sector medians in terms of its price-to-sales (P/S) and price-to-book (P/B) ratios. U.S. Steel stock also remains far below its peak price in the summer of 2008.

However, it’s a tough call on whether U.S. Steel’s earnings and other financials justify the recent rally in its stock. In the company’s favor, it has an excellent track record of beating Wall Street’s quarterly earnings-per-share (EPS) estimates.

Furthermore, in the third quarter, U.S. Steel reported adjusted net earnings of $1.40 per share, surpassing the analysts’ consensus estimate of $1.12 per share. On top of that, U.S. Steel posted quarterly earnings before interest, taxes, depreciation and amortization (EBITDA) of $578 million, thereby exceeding Wall Street’s call for $554 million.

Naturally, the outlook for U.S. Steel in 2024 will depend on one’s view of the steel price, the construction industry and the economy in general. If you expect the Federal Reserve’s series of interest-rate hikes to precipitate a recession next year, then you’re probably not a great candidate for a U.S. Steel investor.

On the other hand, if you like to invest in businesses with a sustainability angle, U.S. Steel is worth consideration. The company recently rolled out (literally and figuratively) its non-grain-oriented (NGO) line of electrical steel.

According to U.S. Steel CEO David B. Burritt, NGO steel is “essential to our country’s green energy future and serves the automotive and power generation sectors.” Moreover, Burritt asserts that U.S. Steel’s NGO line “can produce the thinnest gauges, widest widths, and biggest coils in the domestic industry today.”

It just goes to show that even a 100-year-old company can boldly venture into new-energy initiatives.

U.S. Steel’s future hangs in the balance

So far, it appears that U.S. Steel stock is a good value when the company’s earnings are taken into account. Along with that, green-energy investors might want to take a look at U.S. Steel.

Additionally, income-focused investors might be interested to know that U.S. Steel pays a forward annual dividend yield of 0.56%. This won’t be life-changing for most people, but consider the company’s dividend distributions as the icing on the cake for your portfolio.

As mentioned earlier, there’s an unknown factor for U.S. Steel’s investors because the steel price and the future of the economy are difficult to predict. However, that’s not the only uncertain element.

In the press release for U.S. Steel’s third-quarter financial report, Burritt declared that the company “is fully engaged in and is progressing a robust and competitive strategic alternatives review process to maximize stockholder value.” This seems to imply that company management was open a possible buyout or merger.

Fast-forward to mid-December, and U.S. Steel’s future is still up for grabs. One report from Barron’s suggested that there may be “as many as five bidders” for U.S. Steel, including multi-commodity mining company Cleveland-Cliffs (NYSE:CLF).

Currently, it appears that U.S. Steel hasn’t provided a definitive comment on potential bidders. This may be annoying for investors, and it’s undoubtedly frustrating for members of the United Steelworkers union.

United Steelworkers President Dave McCall vented his discontent recently in an interview with Bloomberg, saying, “You would think based on the long history with U.S. Steel they would be talking to us… We get no communication from U.S. Steel about the process.”

Consider McCall’s frustration, and then consider your own tolerance for uncertainty and risk. Unless you’re prepared for any possible outcome — including a “buy the rumor, sell the lack of news” share-price drop — then it’s probably prudent to steer clear of U.S. Steel stock for now.