Aluminum And Steel- Boom Times For Cyclicals

Steel Dynamics (STLD) is one of America’s largest producers of carbon steel, used in buildings, bridges, rails and pipelines — making the company a potential infrastructure spending play.

Thanks to rising demand, Steel Dynamics reported near-record levels of nearly 11 million tons of steel shipments for 2020. Revenue of almost $10 billion, meanwhile, was the fourth highest in the firm’s history.

The company also reported record fabrication volume and steel shipments that were only 1% shy of a record, which management described as a “phenomenal performance” in view of prevailing economic condition last year (and despite below-capacity steel mill operations).

One advantage Steel Dynamics has over other steel producers is its use of electric arc furnaces, which greatly reduce energy requirements and allow steel to be made from 100% scrap metal, allowing the company to produce the metal more cheaply than most of its peers while boosting utilization (and maximizing the benefit of higher prices).

Management expects Q1 profitability from steel operations to come in significantly higher than Q4, driven by flat roll metal demand, and expects an “even stronger” Q2.

Meanwhile, the consensus expects a 34% top-line bump in Q1 and a 66% rise in Q2. A 2.2% annual yield ties a nice bow on this package. The stock’s latest breather looks buyable to us.

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