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Steel Dynamics (STLD) Inks Deal to Buy Mexican Recycling Company

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Steel Dynamics, Inc. (STLD - Free Report) has entered into a definitive agreement to purchase the equity interest of Roca Acero S.A. de C.V. (“ROCA”) to be financed with available cash. This acquisition is part of its North American raw material procurement strategy.

Headquartered in Monterrey, Mexico, Roca operates a ferrous and nonferrous scrap metals recycling business. Its primary operations consist of four scrap processing facilities, strategically placed near high-volume industrial scrap sources throughout Central and Northern Mexico. These combined sites presently ship roughly 575,000 gross tons of scrap per year and have an estimated annual processing capability of around 850,000 gross tons. This deal is subject to customary closing conditions and receipt of required regulatory approvals.

Steel Dynamics stated that it looks forward to adding Roca to its business family to  strengthen its Southwest U.S. and Mexico growth strategy. Combined with its existing North American metals recycling facilities, the addition of Roca bolsters its raw material procurement strategy in the region.

Following the closure of the Roca transaction and the full integration of its Mexican metals recycling operations, STLD expects its Mexican scrap facilities to provide a competitive advantage to the U.S. electric-arc-furnace steel operations. The addition will also provide a high-quality, customer-centered option for its outside scrap customers, the company noted.

Shares of Steel Dynamics have gained 26.1% in the past year against an 11% decline of the industry.

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Steel Dynamics, in its last earnings call, stated that it is confident that domestic steel consumption will continue to be strong this year and into 2023 based on the prevailing market conditions. Order entry activity continues to be strong across all of the company’s businesses. Steel prices are expected to be supported by strong demand, balanced customer inventory levels, and higher raw material costs.

The company anticipates automotive, industrial and energy sectors to remain strong steel consumers in 2022, with demand from the construction sector at the lead. The order backlog at its steel fabrication operations remains at record volume and forward pricing levels. This and continued strong order activity and broad customer optimism support the construction industry’s overall demand dynamics. STLD projects that second-quarter 2022 consolidated earnings will represent another record quarterly performance.

 

Zacks Rank & Key Picks

Steel Dynamics currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the basic materials space are Nutrien Ltd. (NTR - Free Report) , Albemarle Corporation (ALB - Free Report) and Cabot Corporation (CBT - Free Report) .

Nutrien has a projected earnings growth rate of 161.9% for the current year. The Zacks Consensus Estimate for NTR's current-year earnings has been revised 38.8% upward in the past 60 days.

Nutrien’s earnings beat the Zacks Consensus Estimate in three of the last four quarters, while missing once. It has a trailing four-quarter earnings surprise of roughly 5.9%, on average. NTR has rallied around 74% in a year and currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Albemarle has a projected earnings growth rate of 175% for the current year. The Zacks Consensus Estimate for ALB’s current-year earnings has been revised 85.8% upward in the past 60 days.

Albemarle’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 22.5%. ALB has gained 52.4% in a year. The company flaunts a Zacks Rank #1.

Cabot, currently sporting a Zacks Rank #1, has an expected earnings growth rate of 19.5% for the current year. The Zacks Consensus Estimate for CBT's earnings for the current year has been revised 3.4% upward in the past 60 days.

Cabot’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 16.2%. CBT has gained around 16.9% over a year.