Steel Dynamics (STLD) Down to Strong Sell: Time to Dump It? - Analyst Blog
On Feb 28, 2015, Zacks Investment Research downgraded steel company Steel Dynamics Inc. STLD to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Steel Dynamics reported a net loss of $45 million or 19 cents per share in fourth-quarter 2014 compared with earnings of $54.7 million or 24 cents per share in the year-ago quarter. The company’s adjusted earnings came in at 40 cents per share, in line with the Zacks Consensus Estimate. Sales were $2,517.1 million, up 35% year over year in the fourth quarter. Sales, however, missed the Zacks Consensus Estimate of $2,598 million.
The Zacks Consensus Estimate for earnings for Steel Dynamics for the current year has decreased almost 20% to $1.61 per share following 10 downward estimate revisions over the last one month. Similarly, the Zacks Consensus Estimate for the current quarter of 2015 decreased 43.2% to 25 cents per share, following 7 downward estimate revisions over the same time frame.
Steel Dynamics envisions continued growth in the U.S. economy in 2015. However, instability in global market growth and falling oil prices may weigh on the company’s first-quarter 2015 results. Moreover, with oil prices declining, Steel Dynamics anticipates a fall in the consumption of oil country tubular goods (“OCTG”). At Columbus Steel mill, around 20% of the shipments were related to energy products, such as OCTG and line pipe, which are now facing adverse impacts.
Imports also remain a major headwind for Steel Dynamics. U.S. steel imports went up by more than 35% in the first ten months of 2014, reaching a record high of 4 million tons in October. These cheap imports are hurting the margins of U.S. steel players in the industry.
Steelmakers continue to be held back by challenging steel market fundamentals and weak pricing. Overcapacity remains a drag for the steel industry.
Nevertheless, Steel Dynamics remains optimistic about growth in non-service sectors of the U.S. GDP as it can boost steel consumption. The acquisition of Columbus Steel Mills has broadened the company’s geographic footprint and increased product diversification.
Stocks to Consider
Better-ranked stocks in the steel industry include Kobe Steel Ltd. KBSTY, ThyssenKrupp AG TYEKF and LB Foster Co. FSTR. While Kobe Steel and ThyssenKrupp sport a Zacks Rank #1 (Strong Buy), LB Foster carries a Zacks Rank #2 (Buy).
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