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US Steel Stock Surges After Record Q3 Earnings, Dividend Boost, Buyback Plans

U.S. Steel posted record quarterly profits late Thursday, boosted its dividend to 5 cents a share and unveiled plans for a $300 share repurchase program.

United States Steel Corp.  (X) - Get United States Steel Corporation Report shares surged higher Friday after the group posted record third quarter profits while boosting its dividend and unveiling a $300 million buyback program.

U.S. Steel said adjusted earnings for the three months ending in September raced to $1.543 billion, or $5.36 per share, well ahead of the Street consensus forecast of $4.85 and the highest on record. Group net sales, the company said, surged 155% from last year to just under $6 billion.

The group also boosted its dividend to 5 cents per share, a 400% increase from the prior period, and unveiled plans for a $300 million buyback. Capex plans for the next three years, U.S. Steel said, were pegged at $3.7 billion.

“Our balance sheet has been transformed and the cash flow generation of the business has us highly confident in our ability to pre-fund organic growth investments that will expand our existing competitive advantages," said CEO David Burritt. 

“It's not either investing in our business or returning capital directly to stockholders, it's both. Our future now includes a $300 million stock repurchase program and $0.05/share quarterly dividend to begin directly rewarding stockholders for the progress we have made so far," he added. "We are confident in the long-term value our new, highly capable mini mill will create as it further expands our competitive advantage to produce sustainable and differentiated steel."

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U.S. Steel shares were marked 11.1% higher in early trading Friday to change hands at $26.00 each, a move that extends the stock's year-to-date gain to around 52%. 

Overall, U.S. mills -- including U.S. Steel -- have produced 71.4 million tons of crude steel so far this year, according to data from the American Iron and Steel Institute, a 20.26% increase from the same period last year. Average capacity utilization is now at 81.1%, up from just 66.8% over the same period last year. 

However, capacity increases including U.S. Steel's plans for a $3 billion mill that will start producing in 2024 -- will test the 'higher-for-longer' thesis (for broader steel prices) as the government moves to finalize its multi-trillion stimulus bill.

"Yes, US Steel is entering another two to three years of heavy spending, but in our view a)it doesn't appear excessive vs. cash generation," said BMO Capital Markets analyst David Gagliano, who carries a 'market perform' rating with a $27 price target on the stock. "It is expected to generate meaningful incremental longer-term earnings, unlike prior heavy spending cycles."