United States Steel Corporation (X) benefits from the post-Macondo increase in more deep rigs in the Gulf of Mexico, especially as it invested in the area last decade and has a significant tubular business, and changes in interest rates could be beneficial for this company, says Shneur Gershuni, Executive Director at UBS Investment Bank.
“If interest rates were to go up, then the discount rate with U.S. Steel would change with the unfunded pension. That’s equity value that does nothing toward investing in the company itself. Or, if drilling activity increased and the rig count were to go up, that would disproportionally impact U.S. Steel because they’ve got a very sizable tubular business,” Gershuni said.
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Gershuni says U.S. Steel fits the model of a company that invests in itself during times when there isn’t a lot of investor attention on the stock, and he says there may be an improvement on a go-forward basis for the steel company.
“U.S. Steel is benefiting now because in the Gulf of Mexico, post the BP (BP) spill, you have more deep rigs, and U.S. Steel made an investment in that area in 2006 and 2007 when they bought the facilities in the first place. But we definitely like to see companies that are definitely investing in themselves. We like to see companies that take advantage of a quiet period, invest in themselves and improve their earnings profile on a go-forward basis. That definitely contributes to a positive view for us,” Gershuni said.