US Steel Faces Challenges as Stock Prices Fluctuate

United States Steel stock (NYSE:X) fell nearly 6% in trading on Wednesday, continuing a downward trend that has persisted throughout the week. In December 2023, Nippon Steel Corporation, Japan’s largest steel producer, announced plans to acquire United States Steel, but opposition from U.S. leaders, including Presidents Joe Biden and Donald Trump, has complicated the situation. Currently, the stock is trading about 10% higher than it was a year ago, reflecting a volatile period; it peaked at nearly $50 after the acquisition announcement last year. However, this optimism was short-lived due to the deal facing significant resistance, particularly after President-elect Trump promised to block it if re-elected. Nippon Steel’s Vice Chairman and Executive Vice President, Takahiro Mori, stated in a recent press conference that they are confident in concluding the deal by the end of the year.

Amid these uncertainties, the performance of United States Steel in its recent quarterly earnings report fell short of expectations. For Q3 2024, the company reported revenues of approximately $3.85 billion, a 13% decline compared to the previous year. Adjusted earnings also dropped, coming in at $0.53 per share, down from $2.10 during the same period last year.

Despite these challenges, X stock has outperformed the broader market over the past three years. Returns for the stock were 42% in 2021, 6% in 2022, and an impressive 96% in 2023. Comparative performance also shows that the Trefis High Quality (HQ) Portfolio, which consists of 30 diverse stocks, has been less volatile and outperformed the S&P 500 each year during the same time frame.

Why this difference? The HQ Portfolio stocks generally provided better returns while maintaining lower risk compared to the S&P 500, resulting in a smoother performance track. Facing a complex macroeconomic climate with potential rate cuts and geopolitical tensions, could X see a rebound?

Is X stock a compelling investment?

Trefis’s analysis looks at two possible outcomes regarding the acquisition. If the deal is not approved, the fair value of the stock is estimated to be around $40. However, if the acquisition is completed, United States Steel could benefit from synergies, leading to a reasonable post-acquisition valuation around the offer price of $55.

Looking ahead, regardless of the acquisition’s outcome, the financial performance of United States Steel remains vulnerable to declining metal prices. The company has focused on cost control initiatives to mitigate this impact. Future developments in steel pricing or offering a stronger product mix could significantly affect the stock’s direction.

[1] Returns as of 11/14/2024
[2] Cumulative total returns since the end of 2016

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.