On Friday, BMO Capital Markets adjusted its outlook on (NYSE:X) shares, lowering the price target to $43 from the previous $45, while maintaining an Outperform rating on the stock. The revision follows US Steel’s third-quarter earnings report, which revealed an EBITDA of $319 million, marginally surpassing both the company’s guidance and the average estimates of $300 million and $292 million, respectively.
The company’s fourth-quarter EBITDA guidance is consistent with BMO Capital Markets’ projections but falls short of the broader market consensus. Notably, US Steel has increased its capital expenditures (capex) for the second quarter in a row, a move that the analyst described as disappointing. However, it was noted that half of this increase is attributable to capex being accelerated to an earlier period.
Despite the increase in capex, BMO Capital Markets anticipates a significant reduction in US Steel’s capital spending starting in 2025 and beyond. The firm has adjusted its estimates for US Steel downward, citing ongoing weakness in demand and pricing in the steel industry as the primary reasons for the revision.
The analyst remains optimistic about the long-term prospects for US Steel, suggesting that the company’s current investments are expected to lead to enhanced profitability and free cash flow generation over time. This outlook underpins the decision to retain the Outperform rating despite the near-term challenges and adjusted price target.
In other recent news, United States Steel (NYSE:) Corporation has reported third-quarter earnings that exceeded analyst projections. The steel producer posted adjusted earnings per share of $0.56, surpassing the consensus forecast of $0.41, with revenue reaching $3.85 billion, outpacing expectations of $3.77 billion.
The company’s adjusted EBITDA for the quarter was $319 million, reflecting the resilience of its business model despite weaker average selling prices across its operating segments.
In addition, the company’s North American Flat-Rolled segment saw benefits from a strong commercial strategy, while the Mini Mill segment delivered 11% EBITDA margins, adjusting for $40 million in one-time start-up costs for strategic projects.
For the upcoming fourth quarter, U.S. Steel expects adjusted EBITDA to range between $225 million and $275 million, anticipating slightly lower results in its North American Flat-Rolled segment due to lower lagging average selling price expectations.
Furthermore, the company announced the achievement of the first coil at Big River 2 (BR2), with shipments to customers expected to begin in the fourth quarter.
Lastly, U.S. Steel continues to work towards finalizing its transaction with Nippon Steel Corporation by the end of the year, with additional commitments from Nippon Steel, including a minimum of $1.3 billion in investments for the Mon Valley and Gary plants.
InvestingPro Insights
To complement BMO Capital Markets’ analysis, InvestingPro data provides additional context on US Steel’s financial position. The company’s market capitalization stands at $8.75 billion, with a P/E ratio of 15.25, suggesting a moderate valuation relative to earnings. Notably, US Steel’s revenue for the last twelve months as of Q2 2024 was $16.85 billion, though it experienced a revenue decline of 11.39% over the same period.
InvestingPro Tips highlight that US Steel suffers from weak gross profit margins, which aligns with the challenges mentioned in the article regarding industry demand and pricing pressures. The gross profit margin for the last twelve months as of Q2 2024 was 11.42%, reflecting these difficulties.
On a positive note, another InvestingPro Tip indicates that four analysts have revised their earnings upwards for the upcoming period. This could suggest some optimism about US Steel’s future performance, despite the current headwinds.
For investors seeking a more comprehensive analysis, InvestingPro offers additional tips and insights. Currently, there are 6 more InvestingPro Tips available for US Steel, which could provide valuable perspective on the company’s financial health and market position.
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