U.S. Steel Provides Upbeat Q2 Guidance; Shares Plunge on Worries of Increased Metal Supply

United States Steel Corporation (X) announced upbeat guidance for the second quarter of FY21. However, shares of the giant steel producer plunged 7.7% to close at $23.82 on June 17, following China’s announcement that it would release metals like copper, aluminum, and zinc from its national reserves to curtail commodity prices.

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Q2 FY21 Guidance

U.S. Steel said it expects Q2 adjusted EBITDA to be $1.2 billion and adjusted net income (excluding restructuring and asset impairment charges) to be $880 million. Adjusted earnings are expected to be $3.08 per share. (See U.S. Steel stock chart on TipRanks)

The company continues to benefit from higher steel selling prices, which are expected to more than double EBITDA for the Flat-rolled segment compared to Q1 and also set record EBITDA margins for its Mini Mill segment.

David B. Burritt, the company’s President and CEO said, “Continued strong demand and low steel inventories are empowering today’s ongoing market improvements. These market fundamentals are showing no signs of slowing down and have us increasingly confident of another strong year in 2022.”

Driven by the above-mentioned factors, the company is planning a new, sustainable, non-grain-oriented, electrical steel line investment at Big River Steel, an advanced flat-rolled mill in North America, which the company acquired in January 2021.

Full Redemption of Senior Notes Due 2025

In a separate release, the company announced the full redemption of its outstanding 6.875% Senior Notes due 2025.

The total payment, including principal and redemption premium, amounts to approximately $730 million (reflecting a redemption price of 101.719%), plus accrued and unpaid interest to, but excluding, the redemption date of August 15, 2021. The Notes will be redeemed with cash on hand.

Burritt commented, “Superior operating performance and our focus on unlocking value through the sale of non-core assets have afforded us the ability to take bold balance sheet actions and further improve U. S. Steel’s competitiveness.”

Analyst Insight

J.P. Morgan analyst Michael Glick recently downgraded the stock to a Sell (from Hold) after taking a “barbell approach”, and cites the company’s outperformance, lower out-year free cash flow, and “clunkier” asset base compared to its peer Cleveland Cliffs Inc (CLF) for the downgrade.

Glick raised the price target of the stock to $41 (from $7), implying 72.1% upside potential to current levels.

The stock has a Hold consensus rating based on 2 Buys, 3 Holds, and 1 Sell. The U.S. Steel average analyst price target of $32 implies 34.3% upside potential to current levels. Shares have exploded 192.3% over the past year.