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U.S. Steel (X) Up 54% in a Year: What's Behind the Rally?

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Shares of United States Steel Corporation (X - Free Report) have shot up around 54% over a year, significantly outperforming the industry’s growth of roughly 15%.

U.S. Steel, a Zacks Rank #1 (Strong Buy) stock, has a market cap of roughly $6 billion and average volume of shares traded in the last three months was around 9,892.2K. The company has an expected long-term earnings per share growth rate of 8%.  

Let’s take a look into the factors that are driving this steel company.


Driving Factors

Forecast-topping earnings performance in the last three quarters, upbeat outlook for 2018, the company’s efforts to improve its operations and cost structure and the Trump administration’s trade actions on imported steel have contributed to the run up in U.S. Steel’s shares.

U.S. Steel has an impressive earnings surprise history. It has outpaced the Zacks Consensus Estimate in each of the trailing four quarters, delivering a positive average earnings surprise of 56.7%.

U.S. Steel, last month, said that it now expects EBITDA for 2018 to be at or near the top end of the earlier announced range of $1.7-$1.8 billion. It also reaffirmed its second-quarter EBITDA guidance of around $400 million.

Earnings estimates for U.S. Steel have moved north over the past month, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for 2018 has increased by around 2.5% to $5.40. The Zacks Consensus Estimate for 2019 has also moved up 4.5% over the same timeframe to $5.77.

The Zacks Consensus Estimate for earnings for 2018 reflects an expected year-over-year growth of a whopping 178.4%.

U.S. Steel remains focused on improving its cost structure and operations on a sustainable basis through its “Carnegie Way” initiative that includes actions such as manufacturing process/logistics improvements and savings on SG&A costs.

As part of the Carnegie Way initiative, the company is implementing an asset revitalization plan aimed at improving its profitability and competitiveness. The company plans capital investment of $275-$325 million in Flat-Rolled segment asset revitalization in 2018. Carnegie Way actions are expected to deliver meaningful benefits in 2018.

U.S. Steel is also set to reopen the second of two blast furnaces at its integrated steelmaking plant, Granite City Works, in Illinois. The company plans to restart the blast furnace around Oct 1.

The restart is expected to support the growing demand for steel made in the United States. The move will also support higher expected shipments starting in fourth-quarter 2018 and also enable U.S. Steel to support customers during its planned asset revitalization initiatives.

Moreover, steel prices have been rising in the United States on the back of the Trump administration’s trade actions to curb imports, reflected by the spike in hot-rolled steel prices. Higher steel prices drove the performance of U.S. Steel in the first quarter and the momentum is likely to continue in the second quarter as well as for the remainder of 2018.

Other Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include Westlake Chemical Corporation (WLK - Free Report) , The Chemours Company (CC - Free Report) and Versum Materials, Inc. (VSM - Free Report) , each carrying a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Westlake Chemical has an expected long-term earnings growth rate of 12.2%. Its shares have rallied roughly 63% over a year.

Chemours has an expected long-term earnings growth rate of 15.5%. The company’s shares have gained around 12% in a year.

Versum has an expected long-term earnings growth rate of 13%. Its shares have gained roughly 17% over a year.

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