Wall Street Throws Up On US Steel’s “Nightmare On Elm Street” Results

Wednesday, April 26, 2017
By Paul Martin

by Tyler Durden
Apr 26, 2017

Yesterday when commenting on the abysmal results and even worse guidance by steel giant US steel, which cut its 2017 guidance by more than half, now expecting 2017 net earnings of approximately $260 million, or $1.50 per share, more than 50% below the prior forecast of $3.08, we asked “if X cuts EPS by 50% in “improving” market conditions, one wonders what EPS would look like if conditions were actually worse.”

This morning, with X plunging 18% in pre-market trading as Wall Street struggled to understand the reasons behind its earnings miss and guidance cut, the sellside is out, screaming for blood. While some analysts said the steelmaker may be facing company-specific issues, the results also dragged down competitors including ArcelorMittal and Nucor. Axiom’s Gordon Johnson, who has the only sell rating on the stock, said the company has worse to come.

Below, courtesy of Bloomberg is a summary of the reactions to US Steel’s numbers, which if nothing else, will likely prompt Trump to be even more aggressive in seeking trade remedies from China which over the past two years has been dumping its own steel on the US market with gusto.

U.S. HRC Spot Price vs. Chinese HRC Spot Price – U.S. Premium = $244 (courtesy of Axiom)

AXIOM (Gordon Johnson)

If things are so bad during good times, 2Q-4Q is set to resemble a “Nightmare on Elm Street”
Applying market’s 2017 4x Ebitda multiple implies a fair value of $21/share for X
Next move in U.S. steel industry fundamentals is lower, given scrap prices now in full-on correction mode, negative seasonality around the corner for U.S. steel mills, iron ore price declines, rising steel imports and correction in coking coal prices

Reiterates sell

The Rest…HERE

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