The steel industry has been slow to recovery from the global recession but don't look now- steel companies are back! Steel Dynamics, Inc. (STLD - Snapshot Report) recently reported much stronger first quarter results and expects the up trend to continue. This Zacks #1 Rank (strong buy) is trading at just 10x forward estimates.
Steel Dynamics is the 5th largest producer of carbon steel products in the United States. The company operates 5 electric-furnace mini mills.
It produces hot-rolled sheet steel and also engages in metals recycling and metal fabrication. Flat roll mill was 50% of its product shipments in 2010.
Steel Dynamics Finally Beats
Could this finally be the long awaited steel turnaround?
On Apr 18, Steel Dynamics reported its first quarter results and posted its first earnings surprise in 5 quarters.
Earnings per share were 46 cents compared to the Zacks Consensus Estimate at 42 cents. The company made just 29 cents in the first quarter of 2010.
Volumes and Margins Rise
The company surprised everyone by seeing significantly higher volumes and margins at both its steel and metals recycling facilities.
Shipments rose 4% to 1.5 million tons compared to a year ago and were also 10% higher than the fourth quarter of 2010.
Selling prices also rose by $154 per ton to $890 compared with the first quarter of 2010 but also rose $137 per ton from the fourth quarter 2010 average of $753. Ferrous scrap cost per ton also increased year over year and in comparison to the fourth quarter 2010 average.
OmniSource ferrous shipments jumped 24% to 1.5 million gross tons compared to the year ago quarter and were up 23% versus the fourth quarter of 2010.
Its Engineered Bar Products and Flat Roll divisions operated at full capacity in the quarter and has maintained its extended order backlog. Sheet steel demand also remained hot into the second quarter.
Outlook Is Bright for 2011
If there's one negative spot it is the non-residential construction market which still remains in the doldrums. It is still a challenge for its structural and fabrication divisions.
The company has entered the rail market as a way to supplement its structural division and saw rail shipments hit its highest quarterly volume ever at 31,000 tons. Steel Dynamics expects to increase its position in the rail market throughout 2011.
But the rest of 2011 still looks bright. The company continues to see improvement in the U.S. economy and projects higher steel consumption throughout the year.
The second quarter is expected to be "solid."
The company will provide actual EPS and revenue guidance in June.
Zacks Consensus Estimate for 2011 Rises
Analysts are still processing the recent beat and earnings report. However, out of 9 estimates for 2011, 1 has risen in the last week pushing the Zacks Consensus Estimate up a penny to $1.78 per share.
The turnaround in the steel industry is evident from the expected huge jump in earnings in 2011 which is projected to rise 165%. 2012 earnings growth is pegged at 24%.
Still a Value Stock
While Steel Dynamics has bounced off its 2009 low, shares are nowhere near the pre-recession level.
There's still value in STLD. In addition to a P/E of just 10, it has a price-to-book ratio of 1.8 which is below the 3.0 value cut-off.
The company also has a price-to-sales ratio of only 0.6. A P/S under 1.0 indicates that a company is undervalued.
Additionally, Steel Dynamics rewards its patient shareholders with a dividend yielding 2.3%.
Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.