U.S. Steel's (X) Carnegie Way Initiatives Should Bear Fruit
On Nov 26, we issued an updated research report on steel maker U.S. Steel (X). While the company is still exposed to weak steel market fundamentals, it is well placed to gain from aggressive cost management, healthy automotive demand and increased cokemaking capabilities.
U.S. Steel’s losses narrowed in the third quarter of 2014, reported on Oct 28, on strong performance in its Flat-rolled division and continued cost benefits from its “Carnegie Way” program. Both revenues and adjusted earnings topped Zacks Consensus Estimates.
U.S. Steel, a Zacks Rank #2 (Buy) stock, is actively engaged in improving its cost structure and increasing revenues on a sustainable basis through its Carnegie Way initiative that includes actions such as manufacturing process/logistics improvements and savings on selling, general and administrative expenses. These efforts are now expected to deliver $495 million (up from $435 million expected earlier) in cost improvements in 2014, most of which is expected to be realized in the Flat-rolled segment.
U.S. Steel is also seeing strong demand in the automotive space. Its partnership with specialty alloy maker Carpenter Technology Corporation (CRS) to develop lighter high-strength steel for automotive applications will usher in incremental opportunity in the automotive market.
U.S. Steel is also looking for opportunities related to the availability of reasonably priced natural gas as an alternative to coke in the iron reduction process to improve its cost competitiveness while reducing its dependence on coal and coke in the long term. The company is also expanding its coke-making capabilities and has taken a number of steps in order to ensure long-term access to high quality coke for its blast furnaces.
Moreover, U.S. Steel should also gain from the implementation of a new management structure. The company is realigning its three business segments and establishing a new management structure to attain three strategic goals – increasing collaboration with customers, focus on the Carnegie Way projects within the operating units with reliable maintenance and quality, and create more focused and effective accountability.
Other Stocks to Consider
Other companies in the steel industry with favorable Zacks Ranks include Mechel OAO (MTL) and Nucor Corporation (NUE) with both holding a Zacks Rank #2 (Buy).
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Read the Full Research Report on NUE
Read the Full Research Report on CRS
Read the Full Research Report on MTL
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