Analyst Calls For Earnings Flop From U.S. Steel

Jefferies laid out a number of reasons U.S. Steel's quarterly update could disappoint

by Josh Selway

Published on Jan 22, 2019 at 12:58 PM
Updated on Jan 22, 2019 at 2:40 PM

United States Steel Corporation (NYSE:X) is slated to report earnings after the market closes next Wednesday, Jan. 30, and brokerage Jefferies is expecting the company's numbers to disappoint. The firm lowered its opinion on X shares to "hold" and cut its price target to $24 from $27, saying flat steel margins have been under pressure, which could mean weak fourth-quarter earnings and lowered guidance from U.S. Steel. The covering analyst also presented the possibility of the company investing in other growth projects, something that could also hurt free cash flow.

This bearish attention has X stock down 2.9% at $20.87 today, and it would seem options traders are betting on more losses going forward. The February 19 and 20.50 puts are the two most popular contracts in today's trading, with new positions opening at each. Anyone buying to open these options would be betting on U.S. Steel stock falling further on the charts by the time the contracts expire at the close on Friday, Feb. 15.

While the security has seen periods of increased put activity, the last two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) has seen call buying more than double put buying. Moreover, X's Schaeffer's put/call open interest ratio (SOIR) of 0.91 shows call open interest slightly outweighs put open interest among contracts expiring within three months.

Any pessimism around United States Steel would seem appropriate given its performance on the charts, down 45% in the past six months and touching a two-year low of $17.09 on Dec. 26. In fact, X showed up on a list of bearish momentum stocks from Schaeffer's Senior Quantitative Data Analyst Rocky White. One of the criteria for the list is being below its 50-day moving average for the past 40 days, and you can actually see on the chart below how this moving average has been a level of resistance for X.

us steel stock chart

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