On May 26, we issued an updated research report on
). While the steel maker should benefit from healthy automotive
demand, aggressive cost management and increased cokemaking
capabilities, it is exposed to weak steel market fundamentals and
certain near-term operational challenges.
U.S. Steel turned in a profit in the first quarter of 2014,
reported on Apr 29, on its cost-saving initiatives. However,
earnings fell short of the Zacks Consensus Estimate. Revenues fell
year over year and also missed expectations.
U.S. Steel, a Zacks Rank #3 (Hold) stock, 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 and has taken a number of steps in
order to ensure long-term access to high quality coke for its blast
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
U.S. Steel is also actively engaged in improving its cost
structure and increasing revenues on a sustainable basis through
its "Carnegie Way" initiative. These efforts are expected to
deliver $290 million in cost and margin improvements in 2014, most
of which is expected to be realized in the Flat-rolled
However, oversupply in the steel industry and high domestic
imports still remain headwinds, pressurizing prices and prospects
of steel producers. U.S. Steel's Tubular segment is expected to
remain under pressure due to lower pricing.
U.S. Steel is also expected to face raw material delivery issues
as well as maintenance outages in the near term. Moreover, bad
weather-related logistic bottlenecks are expected to affect
production and shipments in second-quarter 2014, leading to a loss
in the company's Flat-rolled segment. U.S. Steel's European
division is also expected to see weaker results in the
Other Stocks to Consider
Other companies in the steel industry with favorable Zacks Ranks
Universal Stainless & Alloy Products Inc.
). While Universal Stainless holds a Zacks Rank #1 (Strong Buy),
ThyssenKrupp retains a Zacks Rank #2 (Buy).
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