On Nov 7, we retained our Neutral recommendation on largest
integrated U.S. steel producer
). While the company remains challenged by weak steel market
fundamentals and higher costs, it should gain from healthy
automotive demand, increased coke-making capabilities and efforts
to improve its cost structure.
U.S. Steel swung to a loss in third-quarter 2013, reported on Oct
28, on a hefty impairment charge. However, the adjusted loss was
narrower than the Zacks Consensus Estimate. Revenues fell by
double digits year over year and missed the Zacks Consensus
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.
Moreover, U.S. Steel is seeing strong demand in the automotive
space. Its partnership with specialty alloy maker
Carpenter Technology Corporation
) to develop lighter high-strength steel for automotive
applications will usher in incremental opportunity in the
Moreover, U.S. Steel is actively engaged in improving its cost
structure and increasing revenues on a sustainable basis through
its "Project Carnegie" initiative.
However, macroeconomic concerns, slowing growth in emerging
markets, and a still sluggish construction market are weighing on
U.S. Steel's prospects. Oversupply in the steel industry and
increased domestic imports still remain headwinds.
Higher operating costs, mostly due to impairment charges, hurt
U.S. Steel's bottom line in the third quarter. The company
envisions repairs and maintenance costs to rise sequentially in
the fourth quarter at its Flat-rolled segment due to blast
furnace reline at Gary Works and blast furnace maintenance at
Moreover, U.S. Steel expects to take a write-down charge of
roughly $225 million in the fourth quarter as a result of its
decision to shutdown iron and steel making operations at Hamilton
Works in Canada.
Other Stocks to Consider
Other companies operating in steel and related industries worth
Companhia Siderurgica Nacional
Mueller Water Products, Inc.
). Both hold a Zacks Rank #2 (Buy).
CARPENTER TECH (CRS): Free Stock Analysis
MUELLER WATER (MWA): Free Stock Analysis
CIA SIDERUR-ADR (SID): Free Stock Analysis
UTD STATES STL (X): Free Stock Analysis
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