We have retained our Neutral recommendation on
). While the company should benefit from expanded cokemaking
capabilities and lower raw material costs, a depressed
construction market, oversupply in the steel industry and pricing
pressure remain as headwinds.
The largest integrated U.S. steel producer posted a net loss
of $50 million or 35 cents per share in fourth-quarter 2012, a
roughly 76% year-over-year decline. Adjusted loss of 41 cents a
share came well below the Zacks Consensus Estimate of 75 cents.
Sales fell nearly 7% year over year to $4,487 million, but beat
the Zacks Consensus Estimate of $4,396 million.
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.
U.S. Steel is also expanding its coke-making capabilities. The
company 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. The company recently partnered with specialty alloy maker
Carpenter Technology Corporation
) to develop lighter high-strength steel for automotive
applications. The collaboration will usher in incremental
opportunity in the automotive market.
However, oversupply in the steel industry and increased
domestic imports represent headwinds for the company. Oversupply
in the industry has led to a decline in steel prices as Chinese
steel production has outpaced demand.
Macroeconomic concerns, slowing growth in the emerging
markets, and a sluggish construction market are still weighing on
U.S. Steel's prospects. The company expects the uncertain
economic environment to affect its results in first-quarter 2013.
This leads us to take a cautious stance.
U.S. Steel currently carries a short-term Zacks Rank #3
Other Stocks to Consider
Other steel producers with favorable Zacks Ranks are
Commercial Metals Company
). While POSCO retains a Zacks Rank #1 (Strong Buy), Commercial
Metals holds a Zacks Rank #2 (Buy).
COMMERCIAL METL (CMC): Free Stock Analysis
CARPENTER TECH (CRS): Free Stock Analysis
POSCO-ADR (PKX): Free Stock Analysis Report
UTD STATES STL (X): Free Stock Analysis
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