Steel Dynamic to Buy 75% Stake in United Steel Supply

Steel Dynamics, Inc. STLD entered into a definitive agreement to buy 75% of the equity interests in United Steel Supply, LLC for $134 million, comprising $92 million in cash and assumption of debt of $42 million. Further, Steel Dynamics has an option to acquire the remaining 25% equity interest in United Steel supply in the future.
 
Headquartered in Austin, TX, United Steel Supply has four distribution centers located in Mississippi, Indiana, Arkansas and Oregon. The company is a leading distributor of painted Galvalume flat roll steel coils used for siding applications and roofing. Since the commencement of the company in 2007, it has achieved compounded annual revenue growth rate of 26%.

Steel Dynamics’ unique combination of Galvalume manufacturing and on-site paint application helps in the production of painted Galvalume, an important product distributed by United Steel Supply. This transaction adds a new distribution channel for Steel Dynamics and connects with industry segment with customers that do not traditionally purchase steel directly from a steel producer.

Following the acquisition, Steel Dynamics will be able to expand its painted Galvalume value chain with an opportunity to provide high-quality flat roll steel to United Steel Supply’s market segment. The company expects the deal to fuel growth in flat-roll steel products which generate the highest margins.

Shares of Steel Dynamics have lost 17.3% over a year compared with the industry’s decline of 20.2%.

In fourth-quarter earnings call, the company said that it anticipates steel consumption in North America to see steady growth in 2019 factoring in strong steel demand and customer optimism. The company believes that these along with its expansion actions are firm drivers of sustained growth.

The company is thus investing $1.7-$1.8 billion to build a new electric-arc-furnace flat roll steel mill in the United States that is expected to have a production capacity of roughly 3 million tons annually. It will have the capability to make the latest generation of advanced high strength steel products.

The company expects this investment to allow it to cost effectively serve customers in this growing flat roll steel consuming region and enhance its steelmaking capacity and value-added product capability.

Steel Dynamics, Inc. Price and Consensus

 

Steel Dynamics, Inc. Price and Consensus | Steel Dynamics, Inc. Quote

 

Zacks Rank & Stocks to Consider

Steel Dynamics currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the basic materials space are Rio Tinto plc RIO, The Mosaic Company MOS and Israel Chemicals Ltd ICL. While Rio Tinto currently sports a Zacks Rank #1 (Strong Buy), Mosaic and Israel Chemicals carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Rio Tinto has an expected earnings growth rate of 5.1% for 2019. The company’s shares have moved up 4.7% in the past year.

Mosaic has an expected earnings growth rate of 23.9% for 2019. Its shares have gained 29% in a year’s time.

Israel Chemicals has an expected earnings growth rate of 11.1% for 2019. Its shares have rallied 40.5% in a year’s time.

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