How Is U.S. Steel Corp Positioned Compared To This Rival?

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The shares of United States Steel Corp (NYSE: X) currently trade at $23 per share, which is 2.5x its pre-Covid level. On the other hand, shares of Cleveland-Cliffs (NYSE: CLF) are trading at $21 per share, 3x its pre-Covid level. Does that make U.S. Steel a better stock pick compared to Cleveland-Cliffs? Both companies are large steel makers. However, Cleveland-Cliffs is more vertically integrated as it mines iron ore and pellet which is used in its steel production. While U.S. Steel has a much higher revenue base, CLF enjoys a better valuation multiple (P/S and P/E) due to much better revenue growth, lower debt position, and vertically integrated business. CLF looks like a better placed stock due to its in house high-grade pellet production and recent acquisitions. We compare a slew of factors such as historical revenue growth, returns and valuation multiple in an interactive dashboard, United States Steel vs Cleveland-Cliffs: Industry Peers; Which Stock Is A Better Bet?

Revenue Growth

  • Cleveland-Cliffs revenue growth has been much stronger than U.S. Steel over recent years, with CLF revenues expanding 42% in the last three years, compared to a drop of 11% in U.S. Steel revenues. CLF revenue increased due to acquisition of AK Steel and ArcelorMittal U.S., partially offset by discontinuation of its Asia-Pacific business. U.S. Steel revenues declined in the last three years as its production for the flat-rolled division declined on account of its asset revitalization program. If you look at the last twelve months (LTM), CLF’s revenue growth clocked a whopping 411% while X’s revenues increased 78%.
  • U.S. Steel business consists of flat-rolled steel sheets and tubular steel pipes that are sold in the U.S. and European markets.
  • Cleveland-Cliffs produces iron ore and pellet at its facilities in the U.S. Post the acquisition of AK Steel and ArcelorMittal U.S., it is one of the largest steel companies in the U.S.

Relevant Articles
  1. How Will U.S. Steel Stock Fare In An Uncertain Economy?
  2. Will U.S. Steel Stock Regain Momentum?
  3. Will United States Steel’s Top Line Accelerate In 2022?
  4. Down Over 20%, Is U.S. Steel Stock A Buy Now?
  5. Amidst Stock Downgrade And Steel Price Drop, How Is U.S. Steel Stock Coping?
  6. Can U.S. Steel Corp Stock Sustain The Momentum After Its 50% Rise?

Returns (Profits)

  • CLF has reported average margins of 16% in the last three fiscal years. However, U.S. Steel has reported losses with its margin at -2.4%. This was because of losses reported during the U.S.-China trade war which led to a drop in steel prices, while the price of iron ore (raw material for steel companies) remained elevated. This adversely affected U.S. Steel’s profits, which is entirely into steel, while CLF benefited as all of its revenues used to come from iron ore and pellet when the trade war was ongoing.
  • In the last twelve months, U.S. Steel has performed much better than CLF with margin of 23% as steel prices have increased and the company’s steel production is recovering. On the other hand, CLF’s LTM margins were lower at 11% due to expenses related to acquisitions.

Risk

  • With respect to leverage, CLF is in a better position with its debt as a percentage of equity standing at 45%, as against 65% in the case of U.S. Steel.
  • However, U.S. Steel has better liquidity with cash a percentage of assets at 12%, in comparison to 1% for CLF.

Net of it all

Though U.S. Steel has a larger revenue base and better cash position, CLF is likely to continue to exhibit superior revenue growth. Additionally, the recent acquisitions and the fact that iron ore prices have declined recently will help the margins of the steel giant, to rise sharply. With the markets expecting that steel prices will cool down everywhere in the U.S. in 2022, this would auger well for CLF which has full exposure to the U.S. market, as against U.S. Steel which sells in the European market as well.

 

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since the end of 2016.

Returns Nov 2021
MTD [1]
2021
YTD [1]
2017-21
Total [2]
X Return 0% 39% -30%
CLF Return -15% 43% 148%
S&P 500 Return 1% 24% 108%
Trefis MS Portfolio Return -2% 48% 301%

[1] Month-to-date and year-to-date as of 11/30/2021
[2] Cumulative total returns since 2017

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