What does United States Steel Corporation’s (NYSE:X) Balance Sheet Tell Us About Its Future?
Stocks with market capitalization between $2B and $10B, such as United States Steel Corporation (NYSE:X) with a size of US$6.44B, do not attract as much attention from the investing community as do the small-caps and large-caps. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Today we will look at X’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into X here. See our latest analysis for United States Steel
Does X generate an acceptable amount of cash through operations?
Over the past year, X has reduced its debt from US$3.03B to US$2.70B , which is made up of current and long term debt. With this debt payback, X currently has US$1.55B remaining in cash and short-term investments for investing into the business. On top of this, X has produced cash from operations of US$802.00M over the same time period, leading to an operating cash to total debt ratio of 29.67%, indicating that X’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In X’s case, it is able to generate 0.3x cash from its debt capital.
Does X’s liquid assets cover its short-term commitments?
Looking at X’s most recent US$2.72B liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$4.76B, with a current ratio of 1.75x. For Metals and Mining companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can X service its debt comfortably?
X is a relatively highly levered company with a debt-to-equity of 81.39%. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if X’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For X, the ratio of 2.96x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as X’s low interest coverage already puts the company at higher risk of default.
Next Steps:
X’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around X’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for X’s financial health. Other important fundamentals need to be considered alongside. You should continue to research United States Steel to get a more holistic view of the mid-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for X’s future growth? Take a look at our free research report of analyst consensus for X’s outlook.
Valuation: What is X worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether X is currently mispriced by the market.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
