The steel industry is gaining traction as industrial and building activities rebound from pandemic-driven lows. Steel demand is increasing significantly, and analysts expect global steel demand, excluding China, to reach pre-pandemic levels this year. The World Steel Association (Worldsteel) has forecasted world steel demand to grow 4.5% in 2021 and 2.2% in 2022 to reach 1,896.4 Mt.
In November, President Biden signed the Infrastructure Investment and Jobs Act into law. Of $1.2 trillion in infrastructure spending provided by the bill, some $850 billion is for steel-containing infrastructure investment. The American Iron and Steel Institute (AISI) has estimated that for every $100 million in infrastructure investment, demand for domestic steel might rise as much as 5 million tons.
Ternium S.A. (TX)
TX is a manufacturer of steel products. It operates through two segments–Steel and Mining. The company also provides financial, social, and engineering services and operates as a distribution firm. It is based in Luxembourg City, Luxembourg.
In August, TX signed a memorandum of understanding (MoU) with mining company Vale S.A. (VALE) to develop steelmaking solutions that reduce CO2 emissions. The companies intend to develop feasibility studies for potential investments in an iron-ore briquetting plant and other plants to produce low-carbon metallic products. The partnership is aligned with TX’s decarbonization strategy and commitment to reducing its CO2 emission intensity by 20% by 2030.
For its fiscal third quarter, ended September 30, TX’s net sales climbed 114.7% year-over-year to $4.59 billion. Its EBITDA improved 432.1% from the prior-year quarter to $1.88 billion. And the company’s profit for the period and earnings per ADS came in at $1.37 billion and $6.12, respectively, up substantially from their negative year-ago values.
Analysts expect TX’s EPS to increase 138.4% year-over-year to $5.03 in the current quarter (ending December 2021), while the $4.64 billion consensus revenue estimate for the current quarter indicates a 79.8% improvement from the same period last year. In addition, TX has topped consensus EPS estimates in each of the trailing four quarters, which is impressive.
The stock has gained 48% in price over the past year and 50.2% year-to-date to close yesterday’s trading session at $43.69.
Of the six Wall Street analysts rating TX, four have rated it Buy, while two have rated it Hold. The 12-month median price target of $56.75 indicates a 29.9% potential upside. The price targets range from a low of $46.00 to a high of $68.00.
TX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
TX has a Growth, Value, Momentum, and Quality grade of B. In the A-rated, 34-stock Steel industry, it is ranked #6.
In addition to the POWR Rating grades we have stated above, one can see the TX ratings for Stability and Sentiment here.
United States Steel Corporation (X)
X operates primarily in North America and Europe as a producer and seller of flat-rolled and tubular steel products. The Pittsburgh, Pa.-based company functions through the segments of North American Flat-Rolled (Flat-Rolled); U.S. Steel Europe (USSE); and Tubular Products (Tubular).
On December 9, X, Norfolk Southern Corporation (NSC), and The Greenbrier Companies, Inc. (GBX) unveiled a sustainable steel gondola railcar made from X’s high-strength, lightweight steel. The supplier, builder, and end-user partnership is expected to realize X’s product innovations for the steel and transport sectors.
In November, the company purchased group annuity contracts from Banner Life Insurance Company and William Penn Life Insurance Company, both subsidiaries of Legal & General America, Inc., to transfer approximately $284 million of the company’s pension plan obligations. Regarding the transfer, U. S. Steel President and Chief Executive Officer David B. Burritt said, “This transaction is yet another meaningful step in strengthening the company’s balance sheet and further de-risking our pension plan, a plan that remains more than 100% funded and is an important source of differentiation versus some peers in the steel industry.”
X’s net sales increased 154.9% year-over-year to $5.96 billion in its fiscal third quarter, ended September 30. Its adjusted net earnings and adjusted net EPS stood at $1.54 billion and $5.36, respectively, registering a substantial increase over their negative year-ago values. For the nine months ended September 30, the company’s cash, cash equivalents, and restricted cash balance rose 20.4% from the same period last year to $2.15 billion.
A $5.25 consensus EPS estimate for the current quarter (ending December 2021) indicates a 2,044.4% year-over-year increase. The $5.85 billion consensus revenue estimate for the current quarter reflects a 128.2% improvement from the prior-year quarter. Moreover, X has an impressive surprise earnings history; it has topped consensus EPS estimates in each of the trailing four quarters.
Over the past year, X has gained 33.1% in price to close yesterday’s trading session at $22.98. It has gained 37% year-to-date.
Of the eight analysts rating X, three have rated it Buy, while three have rated it Hold, and two have rated it Sell. The 12-month median price target of $30.75 indicates a 33.8% potential upside. The price targets range from a low of $17.00 to a high of $50.00.
It is no surprise that X has an overall B rating, which translates to Buy in our POWR Rating system. The stock has an A grade for Growth and Value and a B grade for Momentum and Quality. It is ranked #16 in the Steel industry.
Click here to see the additional POWR Rating for X (Stability and Sentiment).
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TX shares were trading at $41.98 per share on Wednesday afternoon, down $1.71 (-3.91%). Year-to-date, TX has gained 55.27%, versus a 24.96% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...
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