This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Market Overreacting to U.S. Steel

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

NEW YORK (Trefis) -- U.S. Steel (X) recently announced earnings, the company's first profitable quarter since the fourth quarter of 2008.

The company posted revenue of $5.1 billion and net income of $222 million in this quarter, in line with our expectations. The capacity utilization of the flat-rolled products was 81%, and the company faced some losses in shipments in its European operations due to weaker demand and some planned maintenance items. However, demand in its U.S. flat rolled and tubular products looks healthy and supports our positive view despite the company lowering its guidance slightly for the remainder of the year.

We believe the market's knee-jerk reaction to earnings, sending shares down nearly 10% from pre-earnings levels, are overdone. U.S. Steel competes with international steel companies like ArcelorMittal (MT), BaoSteel, Posco (PKX), Nippon Steel and ThyssenKrupp.

>> Keep the stock market at your fingertips with TheStreet's iPad app.

Our price estimate for shares of U.S. Steel is $47.60, roughly 20% ahead of the current market price.

The U.S. flat rolled shipments are expected to reach 16 million tonnes by the end of the year, an approximate 6% increase over the last year's shipments. The steel companies have increased their production capacity overall to compensate the increase in demand for flat rolled steel. The major chunk of the demand is expected to come from the automobile manufacturers as they look forward to replenish their inventory. However, the increased competition in the market has lead to a near-term over-supply situation, pushing the spot market price of the flat rolled products down.

We have revised our average realized flat-rolled steel price to $723 by the end of the year. The decline in the average price may not hurt the company as the company benefits from the declined in iron ore prices. We expect this trend to continue in the coming years as the biggest iron ore consumer, China, continues to explore domestic sources of iron ore production. This should help U.S. Steel's margins in the near term.

Tubular steel demand is expected to pick up in the remaining half of 2011, primarily driven by the energy related tubular products. The energy companies are increasingly focusing on horizontal and oil-directed drilling, which will in turn help lift the realized prices of tubular steel.

Even though the company has lowered its estimates for the next quarter, there is plenty of upside for the company in the second half of the year.

See our complete analysis for U.S. Steel

Like our charts? Embed them in your own posts using the Trefis Wordpress Plugin.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 16,919.59 +80.85 0.48%
S&P 500 1,981.60 +9.86 0.50%
NASDAQ 4,527.5140 +19.2020 0.43%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs