Steel Dynamics (STLD, Financial) recorded 7.4 million tons of steel shipments during 2014, an increase of 20% from last year. It also achieved solid steel fabrication shipments of 481,000 tons in 2014. Further, it registered robust liquidity levels of $1.6 billion, coupled with a highly stable credit profile.
Strong performance
In the fourth quarter, Steel Dynamics achieved reduced cost or adjustments of market raw material inventory for Minnesota and extra purchase accounting adjustments linked to the Columbus acquisition. This key acquisition worth $1.625 billion in cash is estimated to increase the company's annual steel shipping capacity to 11 million tons, depicting nearly 40% growth. Steel Dynamics is also expected to gain from the expanding automotive sector, rebound of the housing and construction markets and some strategic acquisitions.
The impressive increase in the overall steel shipments for the quarter highlights the effectiveness of the company strategies and healthy operations.
Steel Dynamics also registered excellent shipments of 2.3 million tons during the quarter, an increase of 23% compared to the same period last year, though its metal spread declined. The prices for scrap raw material fell 3%, whereas the total steel prices lowered by 4% on an average.
But, there’s a tough year-over-year operating environment for the company’s metals recycling business. Both the company’s ferrous and nonferrous shipments declined in the fourth quarter with the fall in both domestic steel demand and export demand.
Steel Dynamics is witnessing a tough operating environment with both declining steel prices and lowering of the overall steel demand. However, it continues to witness enhancements in the fundamental non-residential construction demand.
In the fourth quarter, Steel Dynamics reported solid cash flow generation of $320 million allowing it an additional room for further key growth investments. It also completed development of its 2 major organic growth projects linked to premium rail and SBQ and it focused on integrating the Columbus acquisition.
More reasons to invest
Steel Dynamics offered net $105 million in cash dividends to its shareholders in 2014 and successively increased its yearly cash dividend by 10% during the first quarter of 2013 and further 5% during the first quarter of 2004, highlighting its supreme capability to deliver attractive shareholder returns.
The expanded cash flow generation by Steel Dynamics gives it flexibility to target other key investments and excite the investors by successively and significantly increasing the shareholder returns.
Steel Dynamics plans to enhance its rail shipments for the quarter, encouraged by the ongoing growth in the U.S. economy which is forecasted to demand for new rail investments along with the extreme requirement for substitute maintenance rail. The steel major is believed to significantly benefit from huge demand in the U.S. and developing markets such as India. Going forward, Steel Dynamics seems committed to this expanding market and targets a minimum of 300,000 tons yearly.
The unique capability of Steel Dynamics to develop premium and longer rails is believed to hugely benefit the company with the accelerating demand from the growing U.S. economy.
The consensus estimate among 20 polled investment analysts for Steel Dynamics suggests that the company should outperform the market. The analysts estimate improved from the earlier 2008 forecast which suggested investors to hold their position in the company.
Conclusion
Overall, the investors are advised to invest into Steel Dynamics, Inc. looking at the impressive valuations with the trailing P/E and forward P/E ratios of 29.43 and 9.53 respectively and comparable to the industry’s average P/E of 13.63, going forward. The PEG ratio of 0.72 suggests excellent company growth and marginally better than the industry’s average of 0.76. The profit margin of 1.79% is satisfactory. Moving ahead, Steel Dynamics needs to optimize its balance sheet with huge total debt level of $3.02 billion against total cash position of $361.36 million only to plan for further strategic investments.
