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National Steel to Gain From Rising Demand Amid Cost Concerns

Zacks Equity Research

On Jan 14, we issued an updated research report on National Steel Company SID. The company’s performance will be backed by its efforts to enhance production capacities, growing demand and focus on deleveraging. However, its results might be marred by rising costs and unfavorable currency translation.

Let’s illustrate these factors in detail.

Growing Demand to Aid National Steel

Recovering domestic economy and improvement in automotive, construction and capital goods sectors will boost demand for steel. Per the World Steel Association, the global steel demand is projected to inch up 1.4% year over year in 2019. Favorable global economic conditions are anticipated to propel investments in advanced nations, which will subsequently spur demand for steel in both advanced and developing nations.

Focus on Deleveraging to Drive Growth

National Steel is poised to gain from focus on deleveraging. For this, the company announced the sale of one of its assets for $93 million in third-quarter 2018 and received additional working capital, which will also contribute to deleveraging. It has a significant pipeline of alternatives which will continue to accelerate the deleveraging.

Investments to Boost Production Capabilities

National Steel consistently strives to improve its production capabilities and services. Majority of the company's capital investments were made for maintaining operations, especially that of steel.

Rising Costs, Unfavorable Currency Translation to Hurt Results

National Steel has been plagued with rising cost and expenses. In the Dec-end quarter, its cost of sales rose 20% year over year, while selling expenses surged 37%. If unchecked, such steep costs will prove detrimental to the company's profitability. Rising raw material prices and an adverse currency movement also remain headwinds for National Steel.

Share Price Performance

The stock has lost around 20% in the past year compared with the 31% decline recorded by the industry during the same time period.

Zacks Rank & Key Picks

National Steel carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Ingevity Corporation NGVT, Israel Chemicals Shs ICL and Quaker Chemical Corporation KWR. While Ingevity flaunts a Zacks Rank #1 (Strong Buy), Israel Chemicals and Quaker Chemical carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ingevity has a projected long-term earnings growth rate of 12%. Its shares have rallied 117% over the past year.

Israel Chemicals has a long-term earnings growth rate of 9.5%. The company’s shares have gained 29% over the past year.

Quaker Chemical has an estimated long-term earnings growth rate of 11%. Its shares have rallied 18% in a year’s time.

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