Steel Dynamics (STLD) Stock Up 31% in a Year: Here's Why

Shares of Steel Dynamics, Inc. STLD have shot up around 31% over a year. The company has also outperformed its industry's growth of roughly 8% over the same time frame.  

Steel Dynamics, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $10.7 billion and average volume of shares traded in the last three months is around 1,935K. The company has expected long-term earnings per share growth of around 12%, above the industry average of 10.4%.

Let's take a look into the factors that are driving this steel maker.

 

What’s Driving STLD?

Forecast-topping earnings performance, buoyant outlook, the Trump administration’s trade actions on imported steel and upbeat prospects stemming from the Heartland acquisition have contributed to the rally in Steel Dynamics' shares.

Steel Dynamics topped earnings and revenue expectations in second-quarter 2018. Its earnings of $1.53 per share rose from 63 cents a year ago and exceeded the Zacks Consensus Estimate of $1.49. Earnings were primarily driven by the company’s flat roll operations as strong demand continued to boost margins.

Notably, Steel Dynamics has outpaced the Zacks Consensus Estimate in three of the trailing four quarters, delivering a positive average earnings surprise of 4.6%.

The company’s net sales went up around 29% year over year to $3,090.5 million in the second quarter, surpassing the Zacks Consensus Estimate of $2,890 million. The company witnessed improved product pricing and demand across the entire steel portfolio, which resulted in strong margin expansion and steel shipments.

U.S. steel producers are benefiting from higher domestic steel prices courtesy of the Trump administration’s trade actions to curb imports. The trade actions have instilled optimism in the long-struggling American steel industry.

Steel Dynamics, during its second-quarter call, reiterated that the market and macroeconomic conditions are positioned to benefit domestic steel consumption and believes that steel consumption will continue to be strong for the remainder of 2018.  Moreover, the company intends to boost production during second-half 2018 to roughly 40,000 tons per month.

Steel Dynamics continues to generate strong cash flows and strengthen financial position. The company also remains committed to deliver shareholder value through strategic and organic growth opportunities. The company should also benefit from its strategic acquisitions.

Steel Dynamics, in June, completed its buyout of Companhia Siderurgica Nacional, LLC (Heartland) from CSN Steel, S.L.U., for $400 million in cash. Heartland produces a range of higher-margin, flat roll steel by further processing hot roll coils into cold roll, pickle and oil and galvanized products.  It has the capability to produce 1 million tons of cold roll steel annually, with galvanizing capacity of 360,000 tons.

The acquisition is expected to increase Steel Dynamics' total shipping capability and annual flat roll steel shipping capacity to 12.4 million tons and 8.4 million tons, respectively. The additional exposure to lighter-gauge and greater width flat roll steel offerings will also expand its portfolio of value-added products, boosting Steel Dynamics’ position as a leading steel producer in North America.

The company expects the Heartland buyout to result in future earnings benefit to Heartland's current operations and its broader Midwest flat roll operations. Steel Dynamics is integrating Heartland into its Midwest flat roll operations and plans to focus on value-added, lighter gauge flat roll production at Heartland. The company believes that the benefits of the Heartland acquisition will boost its EBITDA between $50 million and $60 million per annum on a through-cycle basis.

Steel Dynamics, Inc. Price and Consensus

 

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

Stocks to Consider

Stocks worth considering in the basic materials space include Celanese Corporation CE, Ingevity Corporation NGVT and Air Products and Chemicals, Inc. APD.

Celanese has an expected long-term earnings growth rate of 10% and a Zacks Rank #1 (Strong Buy). The company’s shares have gained around 19% in a year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Ingevity has an expected long-term earnings growth rate of 12% and a Zacks Rank #1. The company’s shares have rallied around 56% in a year.

Air Products has an expected long-term earnings growth rate of 16.2% and carries a Zacks Rank #2 (Buy). Its shares have gained roughly 14% over a year.

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