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U.S. Steel Beats Earnings If...

Summary

Antidumping cases are addressed head on and given a positive outlook on the upcoming decision in December.

Cost savings from the Canadian unit separation are substantial for the long-term.

The supply and demand equation for hot and cold-rolled steel is optimistic despite a declining Chinese GDP and fake semis dumping.

The steel market does not have a lot going for it in the wake of falling prices, along with continually lower growth statistics coming from China, and the undercutting of prices by Chinese steel producers, impacting domestic competition. With several steel companies having now filed cases for antidumping, with a decision expected soon, a highly-leveraged player U.S. Steel (NYSE:X) stands to gain the most. I believe the upside, however, is highly contingent on the upcoming trade case decision and whether or not U.S. Steel can effectively manage its debt, which we'll get more transparency on during the Q3 earnings call November 3.

Performance Update

The question on every shareholder's mind is how does this company get back to its September 2014 highs? We saw a reversal in the last two trading sessions, where it now trades at $11.73, based upon some positive macro data, but the company is still down sharply on the year. Run ups have been marginal and brief, not giving longs much hope. The current short interest is now at 39.93%, but these could get squeezed with positive trade case data. Below you can see the three month view of U.S. Steel:

Source: StockCharts

I believe the fact that U.S. Steel is so far below its 50 and 200-day MAs that the company is at least worth considering in a long perspective. The company is down 56.13% YTD and 67.69% in the past year. From a valuation standpoint, this has created an EV/EBITDA of just 2.52 and an EV/Sales of just 0.26, both of which seem low and potentially signal that this company is trading at a discount.

Forward-Looking Catalysts

I still believe the best way to value this company, considering its strong YTD equity decline beating down its fair value, is through its...


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