U.S. Steel (NYSE:X) is one of the world's oldest companies. Founded in 1901, it was known simply as "The Corporation". Thanks to its long history as one of the United States' premier industrial manufacturing operators, there's no shortage of historic information available to help investors make a sound decision on this stock. Its operations take basic materials such as iron ore and use them to produce steel for the global economy. For this reason, US Steel's stock is correlated with economic growth. To wit, its stock experienced one of its strongest performance periods from 2005-2008, only to come back down to Earth in the Financial Crisis.
To learn all we can about US Steel as an investment, let's take a look at U.S. Steel's history.
|Market Capitalization||$4.8 billion|
A history of building America
U.S. Steel's roots go back to 1901. One of the world's first vertically integrated steel manufacturers, it was the invention of J.P. Morgan, who merged the largest steel producers of the day, including Carnegie Steel (the largest), Federal Steel, American Steel & Wire, and a number of smaller companies. At the time, its market capitalization was approximately $1.4 billion, making it the largest corporation on the planet and producing two-thirds of all steel made in the United States.
Production peaked at over 35 million tons in 1953. Total employee count reached its peak of 340,000 a decade earlier, in 1943. Since then, the company has been a vital but less dominant American corporation. It has even sought to diversify itself away from steel, such as in 1982, when it acquired Marathon Oil -- which CEO Thomas Usher spun off in 2001.
Finding its footing in a new century
In its latest fiscal quarter, U.S. Steel reported earnings of $261 million, or $1.48 per diluted share. That figure includes a gain of $72 million, or $0.41 per diluted share, from the sale of its Canadian operations. But even excluding the gain, the results are a marked improvement over last year. Q2 2016 saw the company lose $46 million, or $0.32 per diluted share.
Despite lagging companies such as ArcelorMittal and POSCO in size and market reach, U.S. Steel remains a major player in the production of steel. Management is attempting to modernize operations through its "Carnegie Way" initiative, a nod to the company's roots. Andrew Carnegie was not only the man who founded a huge portion of what was eventually U.S. Steel, but also famously said: "Watch the costs, and the profits will take care of themselves." With Carnegie's philosophy in mind, U.S. Steel has embarked on a huge efficiency program that has started to bear fruit:
Examples of projects completed under the "Carnegie Way" include blast furnace stove and boiler optimizations and modernization of steel pellet productions. Not the most exciting tasks in the world, but for a steelmaker they can mean the difference between a profit and a loss.
In the Q2 2017 earnings report, management expressed optimism for the future. Demand for flat-rolled steel, as well as products from the company's European mills, is strong. Cost improvements from its tubular segment are finding their way to the bottom line as well. For the full year, the company expects net earnings of $300 million ($1.70 per share) and consolidated EBITDA of $1.1 billion.
Should you own United States Steel?
United States Steel has a history that spans over a century. It was once the largest corporation in the world. Now, as a far smaller enterprise, it is seeking to get back some of that magic via the "Carnegie Way" efficiency initiative. With shares trading in the mid-$20s, far below 2016's high of $40, U.S. Steel is an intriguing investment. Analysts, as polled by S&P Global Market Intelligence, estimate that EPS will grow to approximately $3.50 by fiscal 2019. These numbers, coupled with the Trump administration's call to invest in American infrastructure, are bullish for the stock. For investors unafraid of the obvious risks that come hand in hand with investing in a commodity manufacturer, U.S. Steel's shares are worthy of consideration.