Categories Analysis, Industrials

Should you invest in Steel Dynamics (STLD) stock after 78% rally?

The company benefits from rising production volumes in the domestic market and the corresponding increase in the demand for scrap

The steel industry managed to shrug off the pandemic blues earlier than expected as the recovery in industrial activity pushed up demand. With the vaccination drive and the government’s aggressive infrastructure spending plan catalyzing the rebound, metal company Steel Dynamics, Inc. (NASDAQ: STLD) entered the new fiscal year on a high note.

IS STLD a Buy?

Shares of the Indiana-based company, which operates liquid iron-making and steel-scrap facilities, opened Wednesday’s session at an all-time high of $66.51, which is sharply above its 52-week average. STLD has maintained a steady uptrend so far this year. Despite the recent rally, the stock looks fairly priced and market watchers overwhelmingly recommend buying it, citing the economic recovery and positive demand conditions.

Read management/analysts’ comments on Steel Dynamics’ Q1 earnings

Also, low inventory across the supply chain is having a positive effect on steel prices, after falling to dismal lows in the early days of the pandemic when the manufacturing sector slipped into a recession. The withdrawal of COVID-related restrictions in key markets and the stimulus packages rolled out by various governments bode well for the steel industry, with the main contributors being construction and automotive.

Capacity Utilization up

Statistics show that capacity utilization is increasing across the metal industry, a sign that the market is on the recovery path. As production volumes grow in the domestic market, there is also a corresponding increase in the demand for scrap, which benefits Steel Dynamics’ recycling and production businesses.

Recently, the management exuded confidence that market conditions would remain favorable for the domestic steel industry this year and beyond. In the first quarter of 2021, Steel Dynamics’ adjusted earnings rose to $2.10 per share as sales climbed to a record high of $3.5 billion. While earnings and revenues topped expectations in the last two quarters, annual revenues declined in fiscal 2019 and 2020 after growing in the trailing three years.

Our capital allocation strategy prioritizes responsible strategic growth with shareholder distributions comprised with the base positive dividend profile that is complemented with a variable share repurchase program, while also being dedicated to preserving our investment-grade credit rating. We’re squarely positioned for the continuation of sustainable optimized long-term value creation. And we believe sustainability is a part of our long-term value creation and we’re dedicated to our people, our communities, and our environment.

Theresa Wagler, chief financial officer of Steel Dynamics

Broad-based Gain

The company’s stock gained about 78% this year alone, setting new records regularly. Going by the current trend, it is likely to continue outperforming the S&P 500 index in the near future. The shares traded slightly lower on Wednesday afternoon.

United States Steel Corporation Q1 2021 Earnings Call Transcript

A similar uptrend is visible in the stock market performance of rival metal manufacturers like Nucor Corporation (NYSE: NUE) and Freeport-McMoRan (NYSE: FCX), which rose to new highs this year.

Looking for more insights on the earnings results? Click here to access the full transcripts of the latest earnings conference calls!

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