U.S. Steel Removed in S&P 500 Shake-Up - Analyst Blog


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U.S. Steel ( X ) is being removed from the S&P 500 effective after the close on Jul 1. The benchmark index will add NC-based construction materials maker Martin Marietta ( MLM ) in its roster in place of the nation's largest steel maker by volumes. 

U.S. Steel, which is in the steel-making business for more than 110 years, will replace Martin Marietta in the S&P MidCap 400 list. The Pittsburgh-based steel maker's current market capitalization (of roughly $3.8 billion) makes it more befitting for the mid-cap market space.

U.S. Steel's shares, which closed at $26.02 last Friday, slipped around 1.2% in extended trading. The company has seen its shares sag around 11.5% so far this year versus a roughly 7% gain for the S&P 500. 

U.S. Steel, once the country's first billion-dollar corporation, was founded in 1901 by J.P. Morgan and other legendary businessmen through the merger of Federal Steel Company with the Carnegie Steel Company and other steel and iron businesses with an authorized capitalization of $1.4 billion. 

U.S. Steel, which remains beset by weak steel market fundamentals, posted losses in each of the last five years on weak demand. It was ousted from the Dow Jones Industrial Average in 1991.

The U.S. market is seeing surging imports of steel products. This, in addition to the oversupply, is further pressurizing prices and prospects of steel producers including U.S. Steel, AK Steel ( AKS ) and Nucor ( NUE ). 

Oversupply in the industry has put pressure on steel prices as Chinese steel production has outpaced demand. The low costs of production in China enable the local producers to sell their product at cheaper rates, leading to an industry-wide price decline, hurting margins and earnings power of U.S. Steel in the process. 

While healthy automotive demand, aggressive cost management and increased cokemaking capabilities are expected to benefit U.S. Steel, it is exposed to certain near-term operational challenges.

U.S. Steel, a Zacks Rank #3 (Hold) stock, is expected to face raw material cost (primarily for purchased scrap and energy) pressure and 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 quarter. 

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UTD STATES STL (X): Free Stock Analysis Report

MARTIN MRT-MATL (MLM): Free Stock Analysis Report

AK STEEL HLDG (AKS): Free Stock Analysis Report

NUCOR CORP (NUE): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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