U.S. Steel A Buy At Argus Following November Downgrade

During United States Steel Corporation’s X Q4 earnings call, management highlighted continued improvement in product mix and cost structure in 2016 and announced bullish 2017 guidance. The company would likely return to profitability this year and the estimates are being revised upwards, Argus’s David Coleman said in a report.

Coleman upgraded the rating on U.S. Steel from Hold to Buy, while establishing a price target of $39. The EPS estimate for 2017 has been raised from $1.31 to $2.58.

Attractive Despite Run-Up

U.S. Steel’s shares had appreciated 70 percent in the past three months, versus a 10 percent gain in the S&P 500. Over the past year, the company’s shares had risen 325 percent, versus a 22 percent gain for the index. Despite the sharp run-up, the shares are still trading 47 percent below their post-recession high of $63.50, reached in 2010, Coleman noted.

Moreover, U.S. Steel’s shares were trading at a discount to peers based on P/E, price/sales and price/cash flow, the analyst mentioned.

The stock had been downgraded in November due to “signs of slowing price momentum.” Coleman stated, however, that U.S. Steel was now expected to return to profitability this year, on the back of “stronger pricing, continued cost reductions, and tariffs on imported steel.” He added that the company seemed poised to benefit in 2017–2018 from increased infrastructure spending under the Trump administration.