Korean steel producer POSCO accounted for 51.6% of total crude steel production in the domestic arena in the first half of 2017. We believe expectations of healthy growth in steel demand globally in 2017, the company’s diversified business structure, increased 2017 guidance and planned investments has made POSCO an attractive choice for investors seeking exposure in the steel industry.
It currently sports a Zacks Rank #1 (Strong Buy).
In the last three months, the company’s American Depository Receipts (ADR) have yielded 23.6% return, outperforming 20.6% gain recorded by the industry it belongs to.
Why the Upgrade?
We believe POSCO’s impressive performance in second-quarter 2017 and sound growth prospects have created positive momentum for the stock. Notably, the company’s ADR price has increased 1.1% since the release of the second-quarter results on Jul 20. Net income grew 139.8% year over year primarily on the back of revenue growth and improvement in margin profile.
We believe that rising steel demand will create lucrative business conditions for POSCO in the quarters ahead. Per the World Steel Association report, the global steel consumption is predicted to grow 1.3% year over year in 2017 on the back of demand expansion in China, India, the United States, European Nations, Southeast Asia and other emerging nations. For 2017, the company anticipates consolidated revenues to be approximately KRW 59.3 trillion, up from earlier forecast of KRW 54.8 trillion. Consolidated investments are likely to be KRW 3.5 trillion. Steel production is projected to be nearly 37 million tons and finished product sales to be roughly 35.1 million tons.
In the quarters ahead, we believe that POSCO is poised to gain from its steel and four other major growth businesses, including energy, materials, infrastructure and trading. Ongoing initiatives to strengthen the company’s competitiveness in steel production, focus on new businesses opportunities and improvement in financial as well as managerial structure will be beneficial. Investments will be primarily directed to renovation of existing steel facilities, enhancement of steel production capabilities, improvement in steel manufacturing process and expansion of trade businesses.
Solid prospects have driven positive revisions in earnings estimates for POSCO. Over the last 60 days, the Zacks Consensus Estimate for the company increased 7.5% to $7.73 for 2017 and 6.9% to $8.31 for 2018. These estimates represent year-over-year growth of 116.5% for 2017 and 7.5% for 2018.
POSCO Price and Consensus