ArcelorMittal stock (NYSE: MT) price has decreased by about 50% in little over the last three plus years, when the stock price dropped from $22 at the end of 2016 to near $11 as on 18th June 2020. That’s bad news for ArcelorMittal. But wait a minute, US Steel stock (NYSE: X) price has seen a much larger drop of 70% during this period. This is despite the fact that US Steel has seen a better revenue growth compared to ArcelorMittal between 2016 and 2019. Does the stock price movement then make sense? We believe it does and our dashboard US Steel vs. ArcelorMittal: Does The Stock Price Movement Make Sense? has the underlying numbers.
Sure, US Steel’s revenues have increased at a higher rate compared to ArcelorMittal’s revenues, but the one key element which explains the degree of stock price movement is the net margin. ArcelorMittal’s net income margins have consistently been higher than US Steel’s over the last four years. This is mainly due to its larger size of operations, higher shipments, and lower cost per unit as the high fixed cost is attributed to more tons of steel produced. The P/E of these two steel giants is not comparable as both companies reported losses in 2019 and EPS turned negative. So, what along with margins is driving a difference in price drop? It is the near-term business outlook.
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- Will United States Steel’s Top Line Accelerate In 2022?
- Down Over 20%, Is U.S. Steel Stock A Buy Now?
- How Is U.S. Steel Corp Positioned Compared To This Rival?
- Amidst Stock Downgrade And Steel Price Drop, How Is U.S. Steel Stock Coping?
How Do Core Businesses Of US Steel and ArcelorMittal Compare?
Let’s have a closer look at the core business prospects. Though lower steel prices in 2019 (due to US-China trade war) and 2020 (due to coronavirus pandemic) is affecting both companies as price of the primary raw material (iron ore) continues to remain elevated), ArcelorMittal’s margins are set to be relatively less affected by the crisis due to the size of its operations. A much higher production level and diversification across market (US, China, Africa, Europe) in comparison to US Steel which caters mainly to the US and European markets has always helped and is expected to help MT achieve better economies of scale when compared to X. This was also reflected in the Q1 2020 results, where despite US Steel reporting a 21% decline in revenue as against ArcelorMittal’s revenue drop of 23%, US Steel’s margins were much worse at -14.2% as against MT’s -7.5%.
For the full year we expect US Steel’s revenues to register a y-o-y decline of 22% as against MT’s projected sales drop of 15%. Additionally, during such a difficult time, US Steel is burning a lot more cash than its peers. The company’s flat-rolled segment asset revitalization program, that aims to increase productivity and reduce cost in the long term, has led to a planned outage at its Great Lakes Works facility, which will further affect steel production from the facility. Thus, once lockdowns are eased after signs of abatement of the current crisis, steel prices along with capacity utilization is expected to go up and shipments for major steel players would start increasing as global supply bottlenecks ease. But US Steel is not expected to be able to take full advantage of a post-crisis surge in prices, as its shipment growth would still be lower than other major peers due to the revitalization program driven shutdown.
Thus, the near-term outlook for ArcelorMittal remains much brighter compared to US Steel. Trefis has a price estimate of $15 per share for ArcelorMittal’s stock, higher than its current market price, whereas we value US Steel’s stock at $6 per share, much lower than its current market price.