United States Steel Corporation (X), Cliffs Natural Resources Inc (CLF): Is the Steel Industry Finally Worth a Look?

At just 6.3 times the median forward earnings projections, analyst earnings estimates for this year are extremely varied, ranging from $0 to almost $4 per share.  Going forward, the range is even wider (read: uncertain), as 2014’s projections range from under $1 to about $7 per share.  I think that once the market gets some clarity as to how Cliffs Natural Resources Inc (NYSE:CLF) will actually perform, that will be enough to lift and stabilize the share price considerably.

Walter Energy, Inc. (NYSE:WLT)

Trading at just over its 52-week low, Walter Energy, Inc. (NYSE:WLT) traded as high as $143 less than two years ago amid rumors of an impending takeover valued at over $150 per share, which obviously didn’t actually happen.  Since then, shares have plummeted for this coal producer, whose main business is producing metallurgical coal for the steel industry.

Just this past week, the company sent out a letter to its investors to discuss the steps it is taking to increase performance, in order to fend off Audley Capital’s efforts to gain control of the board. Walter Energy, Inc. (NYSE:WLT) points out that it has increased its dividend by over 300% during the past decade, and highlights the defensive steps it took once coal prices collapsed in late 2011.

While I don’t think Audley’s proxy fight will be a success, Walter Energy, Inc. (NYSE:WLT) has a ways to go before it is out of the woods.  As the only one of the three companies here expected to post a loss for 2013, Walter Energy, Inc. (NYSE:WLT) is perhaps the most speculative.  They are expected to return to profitability in 2014 and beyond, and when they report their latest results on May 3, investors will get a better sense of direction in this company.  Additionally, the company filed an investor presentation with the SEC that it intends to use with its shareholders before the annual meeting, which is scheduled for the 25th of this month.

Final Note

On the topic of a potential buyout, I believe there will be a lot of consolidation within the steel industry over the next several years, and all of these companies represent potential targets, especially at the depressed prices they are currently trading at.  As all of these companies should (in theory) be worth more to the companies buying them out than they are as independent operations, I think we will see a lot of steel companies get bought out at significant premiums to their current prices, and the possibility of this is an added bonus for those investors who are willing to wait out the rough times.

Matthew Frankel owns shares of United States Steel. The Motley Fool has no position in any of the stocks mentioned.