NEW YORK (TheStreet) -- Shares of United States Steel Corp. (X) are down 5.83% to $30.23 as Brent crude oil fell more than $2 a barrel in Monday trading to a new five-year low, exposing a threat to the company's tubular products division, Axiom Capital analyst Gordon Johnson said.
"The last time oil prices were at the levels seen in today's trading session, U.S. Steel's tubular business saw a contraction in overall rig counts and began generating negative operating margins (i.e., 2009)," Johnson said, according to Barron's.
"While we are modeling U.S. Steel's Tubular operating margins at just under 10% in 2015, if we assume these margins go to zero, after-tax this represents about 80 cents per share in EPS downside. We believe this represents about $8 per share in downside from today's price, or -26% in value," he added.
Separately, TheStreet Ratings team rates UNITED STATES STEEL CORP as a Buy with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:
"We rate UNITED STATES STEEL CORP (X) a BUY. This is driven by a few notable strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, compelling growth in net income, notable return on equity, solid stock price performance and impressive record of earnings per share growth. We feel these strengths outweigh the fact that the company shows weak operating cash flow."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- X's revenue growth has slightly outpaced the industry average of 3.4%. Since the same quarter one year prior, revenues rose by 11.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Metals & Mining industry. The net income increased by 88.4% when compared to the same quarter one year prior, rising from -$1,791.00 million to -$207.00 million.
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. When compared to other companies in the Metals & Mining industry and the overall market, UNITED STATES STEEL CORP's return on equity has significantly outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- Compared to where it was a year ago today, the stock is now trading at a higher level, reflecting both the market's overall trend during that period and the fact that the company's earnings growth has been robust. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- UNITED STATES STEEL CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, UNITED STATES STEEL CORP reported poor results of -$11.68 versus -$0.97 in the prior year. This year, the market expects an improvement in earnings ($3.50 versus -$11.68).
- You can view the full analysis from the report here: X Ratings Report