Have you been paying attention to shares of Steel Dynamics (STLD)? Shares have been on the move with the stock up 7% over the past month. The stock hit a new 52-week high of $104 in the previous session. Steel Dynamics has gained 66% since the start of the year compared to the -4.2% move for the Zacks Basic Materials sector and the 2.4% return for the Zacks Steel - Producers industry.
What's Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on October 19, 2022, Steel Dynamics reported EPS of $5.46 versus consensus estimate of $4.97 while it beat the consensus revenue estimate by 3.16%.
For the current fiscal year, Steel Dynamics is expected to post earnings of $21.89 per share on $21.82 billion in revenues. This represents a 36.05% change in EPS on a 18.54% change in revenues. For the next fiscal year, the company is expected to earn $9.11 per share on $15.7 billion in revenues. This represents a year-over-year change of -58.37% and -28.03%, respectively.
Steel Dynamics may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.
Steel Dynamics has a Value Score of A. The stock's Growth and Momentum Scores are A and F, respectively, giving the company a VGM Score of A.
In terms of its value breakdown, the stock currently trades at 4.7X current fiscal year EPS estimates, which is a premium to the peer industry average of 3.7X. On a trailing cash flow basis, the stock currently trades at 5.6X versus its peer group's average of 2.4X. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Steel Dynamics currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Steel Dynamics meets the list of requirements. Thus, it seems as though Steel Dynamics shares could still be poised for more gains ahead.
How Does STLD Stack Up to the Competition?
Shares of STLD have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is Olympic Steel, Inc. (ZEUS). ZEUS has a Zacks Rank of # 1 (Strong Buy) and a Value Score of A, a Growth Score of C, and a Momentum Score of D.
Earnings were strong last quarter. Olympic Steel, Inc. beat our consensus estimate by 22.58%, and for the current fiscal year, ZEUS is expected to post earnings of $1.96 per share on revenue of $2.62 billion.
Shares of Olympic Steel, Inc. have gained 30.7% over the past month, and currently trade at a forward P/E of 4.57X and a P/CF of 2.42X.
The Steel - Producers industry may rank in the bottom 83% of all the industries we have in our universe, but there still looks like there are some nice tailwinds for STLD and ZEUS, even beyond their own solid fundamental situation.
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