United States Steel shares gain 4% on Q1 guidance beat; analyst remains cautious

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(Updated - March 17, 2023 5:15 AM EDT)

United States Steel Corporation (NYSE: X) shares are trading nearly 5% higher in pre-open Friday following the company’s better-than-expected Q1/23 guidance.

Q1 adjusted EBITDA is expected to be approximately $375 million. Adjusted EPS is expected in the range of $0.58-$0.63, better than the consensus estimate of $0.41.

According to the CEO, David B. Burritt, the North American flat-rolled market is gaining momentum. The company's strong safety and operating performance, combined with improving order entry and a focus on winning market share in strategic areas, have resulted in better-than-expected Q1 guidance. Burritt expects these trends to continue into Q2 due to extended lead times and higher selling prices.

Looking ahead to 2023, U.S. Steel is increasingly optimistic about its performance. “Our Flat-rolled segment order book reflects wide-ranging demand improvement. Our Mini Mill segment’s order book is also improving and its cost structure continues to normalize, as anticipated, by absorbing higher priced metallics purchased at the onset of the Ukraine war,” he added.

According to Burritt, demand has improved in Europe, and coupled with the company’s focus on continuous improvement, they saw a positive EBITDA return in February. In Tubular, the company expects another quarter of improving EBITDA performance as seamless pipe prices and order entry remain healthy in Q1.

Morgan Stanley analyst Carlos De Alba said the jump in shares after earnings was expected given guidance came in "well-above" expectations.

Wolfe Research analyst Timna Tanners also highlighted a positive outlook but remains Underperform-rated.

"We think it is outearning in Tubular, but underearning in Europe and BRS. We like its electrical steel investment, benefiting 2024E, but expect cash burn in 2023/24E and challenging U.S. sheet margins amid oversupply. Coke battery closures could incur remediation costs," Tanners said.

By Davit Kirakosyan and Senad Karaahmetovic

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