U.S. Steel (X) saw its shares drop in after-hours trading on Thursday after the steelmaker cut its fourth-quarter EBITDA guidance due to weak demand and pricing in Europe. The company now projects an adjusted EBITDA of $150 million, which is down from its earlier forecast of $225 million to $275 million. It also expects adjusted net earnings per share to range between -$0.29 and -$0.25.
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CEO David Burritt attributed the decline to continued pressure from low steel prices and costs tied to the Big River mill ramp-up. He noted that the Flat-Rolled segment’s adjusted EBITDA would be lower than in Q3 due to reduced selling prices, volumes, and increased maintenance and outage activity.
The company also expects weaker performance in its Mini Mill and European segments compared to the third quarter as a result of lower production volumes. Despite ongoing challenges, U.S. Steel aims to increase prime ton production at its new mill to improve future performance.
A Stronger Case for a Merger
U.S. Steel’s weak Q4 guidance could help Nippon Steel’s (JP:5401) argument that its $14.1 billion acquisition offer will provide much-needed stability and growth for the struggling steelmaker. Nippon Steel has positioned the deal as a strategic opportunity to improve profitability by investing $2.7 billion in order to upgrade U.S. Steel’s aging facilities.
Today’s disappointing outlook suggests that U.S. Steel may be more vulnerable than its peers to market pressures, especially since analysts were expecting positive EPS results for Q4.
Is X Stock a Buy or Sell?
Turning to Wall Street, analysts have a Strong Buy consensus rating on X stock based on three Buys, one Hold, and zero Sells assigned in the past three months, as indicated by the graphic below. After a 33% decline in its share price over the past year, the average X price target of $45.25 per share implies 42.65% upside potential.