Back to top

5 Reasons to Add Steel Dynamics (STLD) to Your Portfolio

Read MoreHide Full Article

Steel Dynamics, Inc.'s (STLD - Free Report) stock looks promising at the moment. We are positive on the company’s prospects and believe that the time is right for you to add the stock to portfolio as it looks promising and is poised to carry the momentum ahead.

Let’s delve deeper into the factors that make this steel maker an attractive investment option.

What’s Working in Favor of STLD?

Solid Rank & VGM Score: Steel Dynamics currently sports a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities for investors. Thus, the company appears to be a compelling investment proposition at the moment.

An Outperformer: Steel Dynamics has outperformed the industry over a year. The company’s shares have rallied around 36.5% over this period, compared with roughly 2.8% growth recorded by the industry.


Solid Growth Prospects: The Zacks Consensus Estimate for earnings for 2018 for Steel Dynamics is currently pegged at $5.52, reflecting an expected year-over-year growth of 108.3%. Moreover, earnings are expected to register a 159.1% growth in third-quarter 2018. The company also has an expected long-term earnings per share growth rate of 12%, higher than the industry average of 10.1%.

Superior Return on Equity (ROE): Steel Dynamics’ ROE of 26.9%, as compared with the industry average of 13.8%, manifests the company’s efficiency in utilizing shareholder’s funds.

Upbeat Prospects: Steel Dynamics witnessed improved product pricing and demand across the entire steel portfolio, which resulted in strong margin expansion and steel shipments in the last reported quarter.

The company, during its second-quarter call, reaffirmed 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.

Steel Dynamics’ board recently authorized an additional share repurchase program worth up to $750 million. The authorization follows the completion of the company’s $450-million share buyback authorization that was finished in August. The new authorization demonstrates Steel Dynamics’ confidence in generating strong free cash flow.

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

Other Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include Celanese Corporation (CE - Free Report) , Ingevity Corporation (NGVT - Free Report) and Air Products and Chemicals, Inc. (APD - Free Report) .

Celanese has an expected long-term earnings growth rate of 10% and a Zacks Rank #1. The company’s shares have gained around 16% 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 64% in a year.

Air Products has an expected long-term earnings growth rate of 16.2% and carries a Zacks Rank #2. Its shares have gained roughly 12% over a year.

Wall Street’s Next Amazon

Zacks EVP Kevin Matras believes this familiar stock has only just begun its climb to become one of the greatest investments of all time. It’s a once-in-a-generation opportunity to invest in pure genius.

Click for details >>

More from Zacks Analyst Blog

You May Like

Published in