U.S. Steel (X) shares surged over 6% to $36.34 on Monday following reports that American steelmakers Cleveland-Cliffs (CLF) and Nucor (NUE) are considering a joint takeover bid. This comes less than two weeks after the White House blocked Nippon Steel’s (NPSCY) $14 billion acquisition attempt of the U.S. steel maker.
Valued at a market capitalization of $8.2 billion, United States Steel Corporation (U.S. Steel) is a major steel (HVG25) producer operating across North America and Europe. It manufactures diverse steel products, including slabs, sheets, plates, and tubes, serving critical industries such as automotive, construction, energy, and appliances. Founded in 1901 and headquartered in Pittsburgh, U.S. Steel also maintains significant iron ore (IPUG25) and coke (XMG25) production capabilities.
According to CNBC, Cleveland-Cliffs plans to acquire U.S. Steel entirely in an all-cash deal valued in the high-$30 range per share, and then it would sell U.S. Steel’s Big River Steel subsidiary to Nucor. The potential offer represents a significant discount to Nippon’s blocked $55-per-share bid but would keep the iconic steelmaker under American ownership.
The Biden administration blocked Nippon Steel’s $14 billion acquisition of U.S. Steel, citing national security concerns. U.S. Steel and Nippon are suing the Biden administration and Cleveland-Cliffs, claiming the latter’s CEO conspired with the Steelworkers Union to derail the Japanese takeover.
While the takeover has not been officially confirmed, let’s consider whether investing in X stock at its current valuation makes sense.
Is U.S. Steel Stock a Good Buy?
Steel remains fundamental to the global economy, with roughly 2 billion tons used annually in construction, infrastructure, and manufacturing. While U.S. Steel has faced challenges from international competition, it has modernized investments in electric arc steelmaking and streamlined operations in recent years.
The steel industry outlook appears positive due to two key factors. First, the $1.2 trillion U.S. infrastructure bill will boost demand. Second, steel exports from Russia fell following its invasion of Ukraine, acting as a tailwind for global prices.
But the story with steel stocks doesn’t match up.
Despite the metal’s crucial role the economy, its cyclical nature and high fixed costs have led to underwhelming stock performance in the past. In the last 10 years, U.S. Steel stock has returned roughly 50% to shareholders. Comparatively, the S&P 500 Index ($SPX) has returned 190% since early 2015.
U.S. Steel’s third-quarter 2024 performance was mixed. It reported net earnings of $119 million, or $0.48 per share, down from $299 million, or $1.20 per share, in the year-ago period. Despite weaker average selling prices across segments, U.S. Steel reported an adjusted EBITDA of $319 million in the September quarter, down from $578 million. Looking ahead to Q4, the company projected adjusted EBITDA between $225 million and $275 million.
What Is the Target Price for X Stock?
According to Wall Street estimates, U.S. Steel is forecast to report free cash flow of $644 million in 2025, compared to an outflow of $1.38 billion in 2024. So, priced at 16.3 times forward earnings, X stock is not too expensive.
Out of the nine analysts covering X, six recommend a “Strong Buy,” one recommends a “Moderate Buy,” and two recommend a “Hold.” The average target price for the steel stock is $40.96, around 10% above the current trading price.
