youS Steel Corporation (X) is one of the largest steel producers in the United States and is among the top 20 producers worldwide. The company recently reported record financial performance in the fourth quarter of 2021 due to increased post-Covid steel demand and inflation. Steel prices are on the rise again due to the disruption caused by the war in Ukraine.
US Steel’s forecast for the first quarter of 2022 indicates continued profit from these market conditions. The company’s stock price has trended higher over the past twelve months, gaining around 64%. Given all of the current circumstances, I give US Steel a bullish rating. Investors should watch for a possible end to the rise in steel prices with the end of the war and towards the end of the year.
The Ukrainian War and Disruptions to Steel Exports
Several commodities, including petroleum, natural gas, coal, wheat, fertilizers, nickel, and steel, experience volatile price fluctuations due to the disruptions of the war. Concerns about the import of these products into the United States and Europe from Russia and Ukraine have increased significantly over the past month.
The war ended Ukrainian exports and sanctions disrupted Russian supply chains. Europe is largely dependent on Russian and Ukrainian exports of raw materials, and it is understood that pressure on the prices of these products is also affecting American markets.
Whether the disruption is severe for each commodity doesn’t really matter, as futures for those commodities have risen significantly. May contracts for hot-rolled steel (CRU) from the US Midwest are currently trading between $1,400 and $1,500 per ton. Before the pandemic, the same futures were trading between $400 and $500 a ton.
During the COVID-19 shutdowns, construction projects were halted and the cost of steel plummeted. As the economy reopened, demand became high and prices rose. Meanwhile, inflation has sent prices skyrocketing. In August, the price was around $1950 per ton. Before the new year, steel prices had fallen again. The ongoing war and foreseeable disruptions have caused prices to spike again over the past 30 days. Steel and metal prices are expected to fall later in the year, depending on the end of hostilities in Eastern Europe.
US Steel’s record performance in the fourth quarter of 2021
US Steel reported revenue of $5.622 billion, representing a 119% year-over-year increase. The increase is partly due to increased demand for post-COVID-19 steel. The company posted a net profit of $1.038 billion. The fourth quarter figures are significantly higher than the previous year, which represented a halt in construction during the pandemic.
The price of steel was high in the fourth quarter of 2021. The company publishes its realized price per ton, which represents a year-over-year increase of more than 50%. US Steel received the following figures per segment per ton: flat rolled $1,432, minimill $1,490, US Steel Europe $1,075 and tubular $1,968. US Steel shipped 3.746 million tons of steel in the quarter.
The company reported a cash position of $2.522 billion and liquidity of $4.971 billion. Long-term assets were $17.816 billion versus long-term liabilities of $8.713 billion. US Steel said its total indebtedness was $4.085 billion.
US Steel Guidance for Q1 2022
The company expects adjusted EBITDA of $1.3 billion and adjusted diluted earnings per share between $2.96 and $3.00. Market consensus for Q1 2022 revenue is $5.34 billion and EPS between $3.00 and $3.20. The company may not be reaching the consensus, but it says in its guidelines that high steel prices will continue to play a role in its strong revenue numbers. The company cites the war in Ukraine as the main cause of the rise in steel prices. US Steel expects the war to continue to play a role in its performance for the first quarter of 2022 results.
US Steel stock price movements
The company’s stock price has seen several rallies over the past twelve months and found resistance above $30 per share. The current rally has taken the stock out of this resistance as it is now trading at $38.20 per share. The stock price hit its 52-week low in late January and has been rising ever since. The rally is expected to continue, but greater market volatility continues to play a role in all stock price movements.
The Taking of Wall Street
As far as Wall Street is concerned, US Steel has a moderate sell rating based on one buy rating, three hold ratings, and three sell ratings assigned over the past 3 months. US Steel’s current price target of $32.82 represents a price decline of 14.64%, from its current price of $38.45.
US Steel is posting record financial performance due to the reopening of the economy and increased demand for structural steel. The company will continue to see increased revenue and net profit due to export disruptions due to the war in Eastern Europe. Steel futures hit yearly highs earlier in the year due to inflation, and prices are high again due to the war.
The company expects these conditions to continue at least until the next quarter. When the war ended, steel prices were expected to fall, as they were lower before the war started.
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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.