Steel Dynamics (STLD, Financial) has been consistently impressive in the stock market. The major contributor to Steel Dynamics’ growth story has been the acquisition of Columbus Mississippi. This is turning out to be a transformational move. Looking ahead, Steel Dynamics is expecting strong growth momentum in the future, which will allow it to leverage its core strengths.
Better times ahead
With Columbus, Steel Dynamics is confident of performing better in the future with significant growth and financial returns. This will generate good cash flows and will help Steel Dynamics maintain a good credit profile. There are certain major areas which are showing positive signs for growth. In addition, the analysis reveals that the down-trended construction market is on track and is recovering at a good pace.
There are some huge opportunities coming in Steel Dynamics’ way. Its fabrication business is already seeing impressive growth and Steel Dynamics is seeing robust improvement in shipments for both of its joist and check products. With the growth in the construction market, the demand are expected to ramp up and with such a record shipment now, Steel Dynamics seems well prepared for the upcoming opportunities.
Focusing on enhancements
Moving on, Steel Dynamics is also looking for making some enhancements to its iron ore retrieval process. This seems easy as the company is already engaged in ramping up the volume while working closely on improving yield, quality and costs. With this enhancement initiative, Steel Dynamics is looking to bring down the cost structure further to improve its margins. Under this, it is now planning to install the same equipment that Magnetation has already utilized in other operations to bring down the overall costs in 2013.
The soft commodity pricing is affecting the company’s Metal Recycling business and the company thinks it to be another headwind in the future. Out of ferrous and non-ferrous metals, ferrous metals did show some flat performance on the quarterly basis as its headwind is mainly offset by cost compression and volume improvement. But due to weaker copper and nickel commodity markets, Steel Dynamics is expecting weaker performance by it which will also hurt its margins in the non-ferrous segment.
Moreover, Steel Dynamics is also concerned about the headwinds that it might face seeing the recent levels of steel imports. But the company is alert about this caution, and it is executing strategic moves to get over it. It is focusing not only in making good PR with the customers but also products which are market competent in this situation across the globe such as its higher engineered SBQ steels and longer-length rail.
It is making significant investments in the railroad as it believes that the domestic rail consumption will increase in next 3 to 5 years. In addition, it is increasing its rail shipments parallel with this growth. This will again help Steel Dynamics in the margin expansion.
Conclusion
Moving on to the fundamentals, with a trailing P/E of 16.21 the stock looks reasonable and the forward P/E of 8.97 shows slow but steady earnings growth in the near term. While the stock looks like a strong long term holding as its earnings are growing at a CAGR of 21.58% as compared to industry average of just 3.41% for the next five years. All these facts indicates clearly that Steel Dynamics is definitely worth your dollars with strong long term and steady short term prospects.
Ă‚
