Following Donald Trump’s win in the 2024 US presidential election, US Steel Corporation (NYSE: X) surged 5% on Wednesday.
This rally aligns with expectations that Trump may reintroduce protectionist measures, including tariffs on imported steel similar to those imposed in 2018.
Under his previous administration, a 25% tariff on steel imports led to a stronger domestic steel industry and temporary price hikes, benefiting local producers like US Steel.
Trump has also suggested a blanket 10% tariff on imports and a potential block on foreign takeovers of US manufacturing giants, including the anticipated Nippon Steel deal for US Steel.
For investors, Trump’s victory renews speculation on US Steel’s future in an increasingly protectionist landscape, with tariffs potentially boosting short-term share prices.
Solid Q3 performance amid industry challenges
US Steel reported a better-than-expected Q3 2024, posting $3.85 billion in revenue, beating projections by $260 million despite a 13% year-over-year drop.
Earnings per share (EPS) of $0.56 also surpassed analyst estimates by $0.09, reflecting resilience in the face of lower steel prices and broader industry contraction.
The company’s North American Flat-Rolled segment maintained performance through its strategic product mix and increase in contracted volumes, while its Mini Mill segment, despite soft pricing, achieved an 11% EBITDA margin.
In Europe, one-time adjustments counterbalanced weaker demand, though the Tubular segment faced notable pressure from falling prices.
For Q4, US Steel forecasts EBITDA between $225 million and $275 million, driven by improvements in its Mini Mill operations, but challenges remain for the Flat-Rolled and European segments.
The Nippon deal: A contentious point
Political resistance continues to cloud US Steel’s $55-per-share cash acquisition deal with Nippon Steel.
In addition to the Trump administration’s opposition, bipartisan concerns over national security and the potential for supply chain disruptions have amplified skepticism about the transaction.
Although Nippon has committed $2.7 billion to US Steel’s US facilities, stakeholders argue that a domestic acquisition by Cleveland-Cliffs, US Steel’s smaller but regionally influential peer, could be more advantageous.
If the deal does fall through, investors expect US Steel shares to potentially drop back to pre-acquisition levels, reflecting market disappointment.
Operational constraints and cash flow pressures
Amid steady revenue pressures, US Steel’s cash flow situation presents a concern.
The company’s operating cash flow fell by half in the first half of 2024, and with $1.3 billion in capital expenditures, free cash flow turned negative by over $800 million.
Although US Steel has sufficient liquidity, the company has indicated that operational reductions may be necessary if the Nippon acquisition is abandoned.
With no significant debt maturities until 2026, the company has some leeway, but a substantial downturn in steel demand or persistent revenue declines could prompt US Steel to re-evaluate its asset base.
Valuation metrics reflect the merger impact
US Steel’s price-to-book ratio of 0.76x and EV/EBITDA multiple of 9.24 place it competitively within the steel industry, yet its valuation has been propped up by merger activity.
Some analysts believe, that without a clear acquisition path, US Steel could revert to its historical valuations, potentially driving share prices lower to align with typical sector multiples.
Comparative data with peers like Cleveland-Cliffs, Steel Dynamics, and Nucor suggest that US Steel’s valuation premium may normalize if merger speculation dissipates, with potential adjustments to its book value and EV multiples.
The combination of Trump’s win, third-quarter earnings, and continued acquisition uncertainties positions US Steel as a volatile but strategically important player.
For now, the company appears resilient, but economic cycles and ongoing geopolitical risks make future gains uncertain.
Next, let’s examine how recent price action and chart trends could inform the stock’s trajectory moving forward.
Strong on medium-term, weak on long-term charts
Following the announcement by Nippon Steel to acquire US Steel last year, the latter’s stock shot up to over $50 but has been on a downward trajectory ever since.
Earlier this year in September the stock collapsed to below $27 but has recovered since then.
Although the stock still appears weak on long-term charts, it is showing strong upward momentum in the medium-term and long-term charts.
Taking that and Trump’s win into account, investors who wish to buy the stock can buy it on today’s surge but must try to accumulate it below $40.
If the upward momentum continues, we may soon see the stock above $50 in the coming months.
If the stock starts losing momentum following today’s bump, traders with a bearish view will also have an opportunity to initiate short positions with a stop loss above the medium-term swing high at $42.78.
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