Are U.S. Steel’s Earnings Estimates Conservative or Accurate?
Will U.S. Steel Corporation's 2016 Guidance Pan Out?
EBITDA estimates
There are several metrics by which you can measure the profitability of a company. However, for companies in the commodity space, EBITDA (earnings before interest, tax, depreciation, and amortization) is generally used. It’s important for investors to follow current as well as forward EBITDA estimates.
EBITDA also influences a company’s trading multiples, as we’ll explore later in this series. In this part, we’ll see what analysts are projecting for U.S. Steel Corporation’s (X) 2016 EBITDA.
EBITDA revised
U.S. Steel has seen several EBITDA revisions this year, as can be seen in the graph above. Currently, analysts expect U.S. Steel to post adjusted EBITDA of $360 million in 2016.
On its 1Q16 earnings conference call, U.S. Steel gave a guidance of $400 million in adjusted EBITDA for 2016, assuming the continuation of the current market scenario. Current analysts’ estimates are roughly 10% lower than U.S. Steel’s guidance.
Rising spot steel prices, especially in flat-rolled sheet products, have changed the way the markets (DIA) look at U.S. Steel and other flat-rolled steel producers such as AK Steel (AKS) and ArcelorMittal (MT).
Nucor (NUE), which is the largest rebar supplier in North America, hasn’t seen a similar rerating like the companies listed above. Rebar prices haven’t moved much, unlike flat steel products, which spiked steeply after anti-dumping duties were imposed.
Impact on U.S. Steel
U.S. Steel generated adjusted EBITDA of -$107 million in 1Q16. It would, therefore, have to post $500 million in adjusted EBITDA in the next three quarters to meet its guidance. In the next part of the series, we’ll see what factors could drive U.S. Steel’s EBITDA this year.
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