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U.S. Steel (X) Q1 Earnings Preview: Stock Poised to Beat?

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U.S. Steel (X - Free Report) is set to release its first-quarter 2017 results after the bell on Apr 25.

The steel giant delivered a positive earnings surprise of a staggering 2,600% in the fourth quarter of 2016. Its adjusted earnings of 27 cents per share for the reported quarter outpaced the Zacks Consensus Estimate of a penny per share. But revenues of $2,650 million trailed the Zacks Consensus Estimate of $2,666 million.

U.S. Steel beat the Zacks Consensus Estimate in two of the trailing four quarters, while missing in the other two with an average positive surprise of 630.61%. Let’s see how things are shaping up for this announcement.

United States Steel Corporation Price and EPS Surprise

Factors to Watch For

U.S. Steel, in its fourth-quarter call, noted that it has entered 2017 with improved market conditions than what it had faced at the onset of 2016. The company said that, if market conditions remain at their current levels, it expects net earnings of around $3.08 per share for 2017. U.S. Steel registered a net loss of $2.81 per share in 2016. Adjusted loss for 2016 was $1.60 per share.

U.S. Steel also expects results for its Flat-Rolled, European and Tubular segments for 2017 to be higher than 2016. The company also expects to be cash positive for 2017, mainly due to improved cash from operations.

The company also said that it will focus on improving its assets and operating performance and driving innovation that creates differentiated solutions for its customers.

U.S. Steel is aggressively pursuing actions to improve its cost structure through its “Carnegie Way” program that should lend support to its March quarter results. These efforts delivered $745 million of benefits in 2016. The Carnegie Way program is expected to continue to generate meaningful benefits in 2017.

Steel market conditions have also improved lately, driven by favorable developments on steel trade cases in the recent past, providing some reprieve to U.S. steel producers. Steel prices have recovered of late, helped by punitive trade actions that led to levy of tariffs on imports.

U.S. Steel recently hailed the Trump Administration's executive actions geared at improving duty collection and further identifying and addressing root causes of unfair trade practices that have cost the U.S. government billions of dollars in lost revenues. The executive order directs U.S. Customs and Border Protection (“CBP”) to chalk out a plan to lessen importer fraud and ensure adequate duty collection.

U.S. Steel has outperformed the Zacks categorized Steel-Producers industry over a year, helped by its strategic actions including sustained efforts to improve its cost structure. The company’s shares have gained around 55.9% over this period, compared with roughly 13.9% gain recorded by the industry.


Earnings Whispers

Our proven model shows that U.S. Steel is likely to beat earnings because it has the right combination of the two key ingredients.

Zacks ESP: The Earnings ESP for U.S. Steel is +14.71% as the Most Accurate Estimate stands at 39 cents while the Zacks Consensus Estimate is pegged at 34 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: U.S. Steel currently carries a Zacks Rank #1 (Strong Buy). Note that stocks with a Zacks Rank of #1, 2 (Buy) or 3 (Hold) have a significantly higher chance of beating earnings.

Conversely, sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of U.S. Steel’s Zacks Rank #1 and positive ESP makes us reasonably confident of an earnings beat.

Other Stocks That Warrant a Look

Here are some other stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:

The Chemours Company (CC - Free Report) has an Earnings ESP of +4.08% and sports a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Albemarle Corporation (ALB - Free Report) has an Earnings ESP of +2.11% and carries a Zacks Rank #2.

Franco-Nevada Corporation (FNV - Free Report) has an Earnings ESP of +15% and carries a Zacks Rank #3.

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