United States Steel Corporation (X)

Here's a summary of US steel Europe performance from 2017 to the current quarter. Earnings before taxes and interest from 2017 to 2021 were $327mln, 359, ($57), $9, and $975mln in 2021. The average prices were $622, 693, 652, 626, and $966. Volumes were 4585 thousand net tons, 4457, 3590, 3041, and 4302. So previously, Europe was generally profitable even at lower steel prices and then exploded in 2021 with the higher prices. It continued in q1 and Q2 with earnings of $264 and $280mln as prices shot up to $1109 and $1217 per net ton. Now the negative is that prices have fallen and costs are still elevated. It still going to be profitable but it will be materially down. The questions in the cc were regarding the future plans for this division and the CEO said they have to get through the Ukraine issue first. To me, this is a major catalyst from when the war in Ukraine ends and they have to rebuild. Same with Europe bouncing back so it's actually amazing the first two quarters of this year that it was even better than in 2021. 2023 futures for hrc are over $900 in europe as well so they should do better than in the years where prices averaged in the $600s but maybe not better than in 2021 where it averaged $966 and volumes have to stay in the 4mln ton+ range or near full utilization
So, conservatively, it could do $500mln which would still be very good and if Ukraine war ends, prices should get a lift. So, Europe can produce anywhere from $0 to over $1bln, but more likely $350 to $500mln range. Huge variation due to the war and recession issues but it should still be EBITDA positive. The exciting thing is once the war is over and reconstruction starts, it could have years of very high profits and that would give them the option to sell if they wanted to. This is one of those assets that was already there prior to 2021 earnings run so market probably doesn't give it much valuation. The upside though is huge if sold or just as a cash cow year after year specially right besides Ukraine. If the war ends, the market will obviously go up but USS will benefit more than the other steel makers.

The company will spend over $3bln in investments/capex to increase EBITDA by $880mln+ by 2026. This is essential for when prices of steel go down in the cycle. The other way they can increase earnings per share is through buybacks and so far have announced $1.3bln. Based on this amount, they could probably retire about 20% of the outstanding shares resulting in a 25% increase in earnings. Because of the low valuation they are getting now and lack of debt maturities and continued profitability, they should just go big and target retiring 30 to 33percent of the shares. This will increase per share earnings by 43 to 50%. I calculate that based on 270mln shares, they would have to retire 81mln shares+ and at an average cost of $25/share cost them a little bit north of $2bln. This is very doable as they have spent $800mln so far and still have $5bln in liquidity. The double impact of the investments and buybacks will turbo charge earnings both in low and high steel price environments. In 2021 for example, they made $13.5/ share. With the investments, that would be like $17/ share and add 43% would yield $24.3 in earnings/share. That's staggering. Let's take a look at 2023, at $3/share current estimate(lower steel price average), the $880mln increase would boost earnings to say $6.5 and the lowered share count would boost it to $9.3/share.....so the combination buybacks/investments is incredible. The investments will provide the anchor to profits in lower steel priced times while the buybacks turbo charge earnings when steel prices are high. At this stage it's not much more to add like $800mln in buybacks. The roadmap is there for the company to add significant value by buying back shares. The benefits goes exponential as the buyback goes higher. Don't expect any dividend increase until 2024 at the earliest as buybacks will better benefit shareholders in the long-term.

The beauty of investing in old world businesses is that they are not investing for eyeballs or future revenue growth for the sake of growth. They are investing to make more money. They can't 'impress' the market with smoke and mirrors. In fact, the reverse has happened when they generate billion dollar quarter after quarter and the market response is always 'but it will go down soon.' In any case, the management has invested wisely with Mini mill 1 paying for itself already and now the Tubular group is literally printing money each quarter. Their $417mln investment has now resulted in $100mln earnings PER QUARTER. And that's with less volumes in previous years

This is WHY management should continue to buy back stock and announce more buybacks. At the end of Q2, they have $3.1bln in cash and total liquidity of $5.5bln. Their average price for the stock they bought is around $25 and even at $32 in the Q1 call announced they will be aggressive as their stock is cheap. They keep mentioning the stock needs to be rerated (meaning valued more) and they are correct. In the 3rd quarter, they will have EBITDA of just under $1bln! At the end of Q2 their equity is up to $10.2bln. By the end of the year book value will be $45+. They can't exit the year with the share price at $25 and have all this liquidity. Buying up to $31.5 (70% of book) by the end of the year is still a good use of funds.

You know that scene in wolf of wall st, where he describes making $70k in a month like it is no big deal?

Tbh that used to seem like such an impossible figure.

Actually have done better than that last month and tbh I am not jumping around, life feels pretty much the same. Still go to the same cafes etc.