With strong results in the recently reported third quarter, Steel Dynamics (STLD, Financial) looks in good shape. The main reason behind such an outstanding performing has been the strong demand from its end markets. Management, however, didn’t clearly post an upbeat outlook, but has stated that it is benefiting from the growing U.S. economy. Steel Dynamics will be focusing majorly on some key growth initiatives to drive its profitability in future. It is expecting better synergies from the acquisitions it made in the past. Let us have a closer look at the overall underlying business of Steel Dynamics.
Quarterly performance
In the recently reported third quarter, with the strong demand across its end markets, Steel Dynamics showed up impressive 25% increase in the net sales. The operating income of the company also increased impressively by 66.5%. On the earnings front, Steel Dynamics posted EPS of $0.38 per share which is more than $0.25 per share which it posted in the same quarter a year ago. Lastly, its profit also soared 59% to $91.2 on a year over year basis.
With the robust increase in the sales it is evident that Steel dynamics is seeing a strong traction for its products and fabrication in the market. The management on the other hand is pleased with the operational and financial performance. It is further expecting to see record volumes in the fabrication and steel. However, overall it was stiff steel import market all over the U.S the robust demand and the market diversification efforts by Steel Dynamics supported its growth strategy and is expected to further benefit the company in the coming quarters.
Impressive moves
In fact, Steel Dynamics has made some impressive moves in the past which are paying off for it now. It is pleased with the successful acquisition of the Columbus flat roll steel mill. With this acquisition Steel Dynamics has strengthened its position with the addition of most technologically advanced steel mills to its portfolio. The company thinks this move to be a wise step towards its growth strategy going forward. Steel Dynamics is further leveraging its core strengths by introducing new value-added products and diversifying its markets.
Steel Dynamics is expecting seeing handsome growth opportunities with the growing economy. With the growth in the non-service related GDP, Steel Dynamics is anticipating it to be a key contributor in the coming quarters. This is also beneficially for the steel market and is expecting to positively affect the steel pricing and consumption giving the companies good growth opportunities. In addition, with the growing economy the automotive segment is expected to boom in the future. The growing economy will soften the interest rates that is expected to raise the automotive demand which will in turn enhance the demand for Steel. With this positive trend, Steel Dynamics is pleased with the growth in the automotive segment as well.
Further, the company is seeing good signs with the growth in the domestic shale arena. It will require infrastructure investments which will surely drive the demand for steel. Steel Dynamics has already created a commendable image having delivered best in class quality in the past. It is already seeing good traction in the market for its 5 of 7 class I products. However, the company is making impressive progress its class I railroads through the qualification process of its premium rail. Moreover, Steel Dynamics is expecting the domestic rail consumption to increase well in the next 3 to 5 years. With the growing demand and the positive market conditions, the company is increasing its rail shipments and is confident of meeting the growing demand by the customers.
Conclusion
Now moving to the fundamentals, Steel Dynamics seems to be cheap with a trailing P/E of 21.53 however its earnings are growing at a slow rate with a forward P/E of 11.18. However, in the next five years, the Steel Dynamics’ earnings are growing at an impressive CAGR of 28.42% which is way better than the industry average of 3.89%. The investments in the growth initiatives and the acquisitions are expected to continue benefiting the company in a long run. This will help Steel Dynamics to gain market share in the coming quarters. So as of now, Steel Dynamics is a good pick.
