US Steel Corporation’s (NYSE: X), which gained 5% following Donald Trump’s victory in the US Presidential election of 2024, surged on Wednesday.
The rally coincides with the expectation that Trump will reintroduce protective measures including tariffs similar to those in 2018 on import steel.
A 25% steel tariff under his former administration led to temporary price increases and a strengthened domestic steel industry, which benefited local producers such as US Steel.
Trump also proposed a 10% blanket tariff on imported goods and the potential to block foreign takeovers by US manufacturing giants. This includes the Nippon Steel acquisition of US Steel.
Trump’s win has renewed speculation among investors about the future of US Steel in a more protectionist environment, and tariffs could boost short-term stock prices.
Despite industry challenges, Q3 results were solid.
US Steel posted a higher-than-expected revenue of $3.85 billion, surpassing projections by $250 million, despite an 13% drop in the year over year.
The earnings per share of $0.56 exceeded analyst expectations by $0.09 and was a result of the company’s resilience against lower steel prices as well as a contraction in industry.
North American Flat-Rolled Segment maintained its performance due to its product mix strategy and increased contracted volumes. Mini Mill, however, achieved an EBITDA margin of 11% despite low pricing.
Tubular prices fell in Europe and offset the weaker demand.
US Steel expects EBITDA for Q4 to be between $225 and $275 Million, largely due to improvements at its Mini Mill, although challenges still remain in the Flat-Rolled segment and European market.
Nippon Deal: A controversial point
US Steel continues to face political opposition over its $55 per share cash deal with Nippon Steel.
Bipartisan fears over the national security of the United States and possible supply-chain disruptions, in addition to Trump’s objections, have increased skepticism towards the deal.
Nippon committed $2.7billion to US Steel’s US facilities. However, some stakeholders believe that an acquisition of US Steel by Cleveland-Cliffs – a smaller, but more influential competitor in the region – could prove more beneficial.
Investors expect US Steel to fall back to its pre-acquisition level if the deal falls through. This is due to market disappointment.
Cash flow and operational constraints
Cash flow is a major concern for US Steel, despite the constant revenue pressure.
With $1.3 billion of capital spending, the company’s free cash flow was negative over $800 millions.
US Steel, despite having sufficient cash on hand, has stated that it may need to reduce its operations if Nippon is not acquired.
US Steel has some flexibility as it does not have any significant debt maturities before 2026. However, a downturn in the steel market or persistent revenue decreases may prompt US Steel’s management to review its assets.
The valuation metrics reflect merger impacts
US Steel has a price-to book ratio of 0.76x, and an EV/EBITDA multiplier of 9.24. This puts it in a competitive position within the industry. However, its valuation is boosted by mergers.
Analysts believe that, without a clear path to acquisition, US Steel may revert back to historical valuations. This could drive share prices down to match typical multiples in the sector.
US Steel may see its valuation premium normalize as merger speculation fades away, with possible adjustments made to the book value and EBIT multiples.
US Steel is a strategic player that will be volatile, but it’s important because of Trump’s victory, the third quarter earnings and ongoing acquisition uncertainty.
The company is resilient for now but the economic cycle and geopolitical risk make gains in future uncertain.
Let’s now examine recent chart and price trends to determine the trajectory of the stock.
Charts showing strength on the medium term but weakness on the long-term
After Nippon Steel announced last year that it would acquire US Steel, US Steel’s shares shot to more than $50. However, they have been declining ever since.
In September of this year, the stock fell below $27. Since then it has rebounded.
The stock is still weak in long-term chart, but it has a strong uptrend on the long-term and medium-term charts.
Investors who want to purchase the stock today can do so, but they must accumulate it under $40.
The stock may reach $50 soon if the upward trend continues.
If after today’s spike, the stock begins to lose momentum, bearish traders will have the opportunity to short the position with their stop-loss above the swing high medium term of $42.78.
The post Is US Steel Stock poised to gain more as Trump prepares for a second term? This post may change as the updates unfold
