Will U.S. Steel Stock Continue To Outperform Despite Economic Headwinds?

U.S Steel stock has had a solid run recently, rising by almost 35% over the last three months. There have been multiple positive developments for the stock in recent months. China – the top steel consumer – has been easing its Covid-19 restrictions in recent weeks and the big reopening of the Chinese economy should result in rising demand, supporting global steel prices. The pricing environment is also looking a bit more favorable recently, with U.S. Steel raising pricing for all its carbon hot-rolled, cold-rolled, and coated steel products by a minimum of $60 per short ton about a month ago. U.S. Steel also issued better-than-expected earnings guidance for the fourth quarter, with adjusted earnings projected to stand at $0.58 to $0.63 per share, versus a consensus estimate of about $0.40 per share. Moreover, unlike its European peers, U.S. Steel has been less susceptible to the uncertainty relating to the war in Ukraine and surging energy prices.

However, despite the recent developments, there are risks as well. Multiple economic indicators point to a recession in the U.S. The yield curve – seen as a very reliable indicator of a coming recession – remains inverted. The U.S. Fed continues with its hawkish stance despite cooling inflation, with more interest rate hikes due through 2023. U.S. manufacturing is also cooling off. S&P Global’s purchasing managers index has declined to the lowest levels seen since June 2020 at a seasonally adjusted 46.2 in December 2022 and down from 57.7 in December 2021. This could impact U.S. Steel which has considerable exposure to the North American market. While U.S. Steel stock has priced in some of uncertainty, cyclical stocks typically react more strongly through the downturn. We value X stock at about $25 per share, roughly 7% below the current market price. See our analysis of U.S. Steel Valuation for more details on what’s driving our valuation for U.S. Steel and how it compares to peers. Also, check out our analysis of U.S. Steel Revenues