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X Details
United States Steel Corporation (NASDAQ: X), is a leading steel producer with operations spread across the U.S. and Central Europe. The company caters to various industries that includes automotive, construction, appliance, energy, containers, and packaging industries with high value-added steel products. It has an annual raw steelmaking capability of 26.2 million net tons. The company also sustains competitively advantaged iron ore production.
Healthy Results Performance in Q2FY21 (For the Quarter Ended 30 June 2021)
Exhibit 1: Performance Snapshot
Source: Company Reports
Material Business Updates
Key Metrics
The company has started to witness an improvement in its current ratio in FY20. The company’s current ratio witnessed a rise in FY20 to 1.67x from 1.45x in FY19. The improvement in the current ratio indicates that the company possesses better capabilities to meet the short-term obligations. Notably, the company’s cash conversion cycle largely remained stable over FY17 to FY20 as it stayed in a range of 92.8 days to 98.8 days over FY17-20.
Exhibit 2: Key Financial Metrics
Data Source: Analysis by Kalkine Group
Top 10 Shareholders: The top 10 shareholders together form 38.15% of the total shareholding while the top four constitute the maximum holding. Notably, BlackRock Institutional Trust Company, N.A. and The Vanguard Group, Inc. are holding a maximum stake in the company at 10.68% and 8.43%, respectively, as also highlighted in the chart below.
Exhibit 3: Top 10 Shareholders
Source: Analysis by Kalkine Group
Outlook
The company has a liquidity position of $4.176 billion, including cash of $1.329 billion at the end of 30 June 2021. The company highlighted that its financial strength provides confidence for $1 billion of additional debt reduction over the next 12 months over and above the $2.2 billion of debt reduction it has already committed to or delivered to date. Further, X is hoping of setting new records in Q3FY21 and expect to post record adjusted EBITDA in Q3FY21.
Besides, X believes that its investment in a state-of-the-art non-grain oriented (NGO) electrical steel line will further aid the company to associate with auto OEMs on their own decarbonization goals. In order to back its transition to a Best for All strategy, the company has divested its Transtar rail assets.
Key Risks
The company’s operations are exposed to the risk of price fluctuations due to the effects of exchange rates on revenues and costs. Further, it is susceptible to market risk or price fluctuations related to the purchase, production or sale of steel products.
Valuation Methodology: Price/EPS Based Relative Valuation (Illustrative)
Stock Recommendation
Over the last 3 months, the stock was down by ~-2.85% while, over the last 6-months the stock was up by ~+46.66%. The stock is trading higher than the average price of the 52-week low-high range for the stock at $6.63 - $29.97, respectively.
We have applied Price/Earnings Per Share multiple based relative valuation (on an illustrative basis) and the target price reflects a rise of low double-digit (in % terms). We have applied a slight premium to Price/EPS multiple (NTM) (Peer Average), considering its healthy performance in Q2FY21, strong liquidity position and debt reduction plans.
Considering the aforementioned factors along with its balance sheet strength, decent outlook, and the current trading levels, we give a “Buy” recommendation on the stock at the current market price of $24.58 per share as on 9:36am ET as on 3rd August 2021.
Technical Daily Price Chart
Source: REFINITIV, Note: The Purple color line reflects RSI-14 Period
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.
Technical Indicators Defined: -
Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.
Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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