U.S. Steel (X) stock dropped by more than 10% on Tuesday following headlines form the Trump Administration.
On Monday, President-elect Donald Trump said he would stop Japan’s Nippon Steel from buying the Pittsburgh steelmaker.
Trump has voiced concern about the implications of a significant American industrial asset being controlled by a foreign company, particularly one from a country like Japan. Japan’s steel industry already competed heavily against U.S. Steel and other domestic steel producers.
Trump has also voiced that his administration would take measures like tax incentives and tariffs to boost U.S. Steel's ability to compete domestically rather than relying on foreign investment.
Nippon’s deal to buy U.S. Steel was first reached in late 2023 but the sale has faced political and labor opposition since.
Fundamentally, U.S. Steel’s business has been weakened over the last five years. Cheaper steel from abroad has put pressures on the company’s revenue and earnings.
Over the last two years, U.S. Steel’s revenue has declined an average of 14% per quarter on a year-over-year basis. Earnings per share have dropped an average of 45% on a year over year basis as well.
Shares of U.S. Steel have been trading in a wide trading range for the past two months as investors have awaited a clearer view on what would happen with the proposed sale of the company.
Today’s move took shares to the middle of that months long trading range with shares closing at $37.50.
It is notable that there has been considerable put option activity at the $40 and $35 strike prices for the January expiration. This suggests that the options market has been preparing for the Trump Administrations announcement to result in lower prices for U.S. Steel stock.
This isn’t the first time that the deal to buy U.S. Steel has been in question.
On September 4, 2024, shares were halted in mid-day after President Biden was reportedly prepared to block the purchase of U.S. Steel by Nippon Steel. Shares dropped more than 20% after the stock resumed trading to close below $30.
Investors need to look no further than U.S. Steel’s long-term price chart for the implications of the purchase being blocked.
U.S Steel stock had traded from $25 to $35 in the months ahead of the proposal from Nippon to Buy U.S. Steel for $55 per share. U.S. Steel’s earnings and revenue were healthy at this point, before the stock spiked to $50 on the announcement.
With lacking growth and the deal off the table, investors should expect U.S. Steel to trade back to the mid-$20 range or lower.
