Steel Stocks

United States Steel Corp Valuation – June 2018 $X

Company Profile (excerpt from Reuters): United States Steel Corporation, incorporated on May 25, 2001, is an integrated steel producer. The Company is engaged in producing flat-rolled and tubular products with production operations in North America and Europe. The Company operates through three segments: Flat-Rolled Products (Flat-Rolled), U. S. Steel Europe (USSE) and Tubular Products (Tubular). The Company’s other businesses include railroad services and real estate operations. As of December 31, 2016, it owned, developed and managed various real estate assets, including approximately 50,000 acres of surface rights primarily in Alabama, Illinois, Michigan, Minnesota and Pennsylvania. In addition, the Company holds ownership interests in joint ventures that are developing real estate projects in Alabama.

 

Downloadable PDF version of this valuation:

ModernGraham Valuation of X – June 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $6,111,689,610 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.63 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -118.66% Fail
6. Moderate PEmg Ratio PEmg < 20 -101.02 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.80 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.63 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.37 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg -$0.34
MG Growth Estimate 13.41%
MG Value $0.00
Opinion Overvalued
MG Grade C-
MG Value based on 3% Growth -$4.99
MG Value based on 0% Growth -$2.92
Market Implied Growth Rate -54.76%
Current Price $34.75
% of Intrinsic Value N/A

United States Steel Corporation does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the low current ratio, insufficient earnings stability or growth over the last ten years, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $-3.25 in 2014 to an estimated $-0.34 for 2018. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into United States Steel Corporation revealed the company was trading below its Graham Number of $37.28. The company pays a dividend of $0.2 per share, for a yield of 0.6% Its PEmg (price over earnings per share – ModernGraham) was -101.02, which was below the industry average of 34.89, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-9.85.

United States Steel Corporation receives an average overall rating in the ModernGraham grading system, scoring a C-.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$9.85
Graham Number $37.28
PEmg -101.02
Current Ratio 1.63
PB Ratio 1.80
Current Dividend $0.20
Dividend Yield 0.58%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $4,830,000,000
Total Current Liabilities $2,959,000,000
Long-Term Debt $2,571,000,000
Total Assets $10,026,000,000
Intangible Assets $165,000,000
Total Liabilities $6,587,000,000
Shares Outstanding (Diluted Average) 178,289,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $3.26
Dec2017 $2.19
Dec2016 -$2.81
Dec2015 -$11.24
Dec2014 $0.69
Dec2013 -$11.37
Dec2012 -$0.86
Dec2011 -$0.37
Dec2010 -$3.36
Dec2009 -$10.42
Dec2008 $17.96
Dec2007 $7.40
Dec2006 $11.18
Dec2005 $7.00
Dec2004 $8.83
Dec2003 -$4.27
Dec2002 $0.62
Dec2001 -$2.37
Dec2000 -$0.24
Dec1999 $0.49
Dec1998 $3.92

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$0.34
Dec2017 -$2.93
Dec2016 -$5.37
Dec2015 -$5.98
Dec2014 -$3.25
Dec2013 -$5.24
Dec2012 -$1.25
Dec2011 -$0.22
Dec2010 $1.43
Dec2009 $4.75
Dec2008 $11.72
Dec2007 $7.74
Dec2006 $6.83
Dec2005 $3.76
Dec2004 $1.60
Dec2003 -$1.73
Dec2002 -$0.15

Recommended Reading:

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United States Steel Corp Valuation – July 2016 $X
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United States Steel Corporation Annual Valuation – 2015 $X
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United States Steel Corporation (X) Annual Valuation

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Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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