On Monday, Wolfe Research maintained its Underperform rating on Steel Dynamics (NASDAQ:STLD) with a steady stock price target of $112.00. The firm's analysis pointed to a second-quarter earnings per share (EPS) forecast that falls short of market expectations.
Management at Steel Dynamics projected Q2 earnings to be between $2.64 and $2.68, which is below the consensus estimate of $2.98 and even under Wolfe Research's own estimate, which was the lowest on the Street at $2.70.
The lower earnings projection is attributed to a significant drop in hot rolled coil (HRC) prices, which declined by 16% quarter over quarter. This price fall impacts roughly three-quarters of the company's tons that are usually contracted on a monthly or quarterly basis. The outlook for the third quarter remains challenging, with contract customers in July seeing HRC prices reduced to approximately $680-710 per short ton after discounts, a notable decrease from nearly $1000 per short ton in January.
Despite these setbacks, Steel Dynamics' Steel Fabrication segment is expected to deliver flat results compared to the previous quarter. Seasonal shipment improvements are believed to have counterbalanced the lower pricing. Management had previously indicated that prices had "stabilized," and the joist and deck backlog is projected to remain consistent with typical lead times of one to two quarters through the fourth quarter of 2024.
Volumes are anticipated to remain unchanged quarter over quarter, even with operational disruptions at the Sinton facility, including a planned outage in April and an unplanned one in May. Management's perspective on demand is more optimistic than recent industry surveys, attributing the perceived weakness in sentiment to the decline in scrap metal prices.
In other recent news, US Steel and Steel Dynamics have provided updates on their financial outlook. US Steel expects its adjusted EBITDA for Q2 2024 to be around $425 million, aligning with market expectations and surpassing Morgan Stanley (NYSE:MS)'s projection of $405 million.
The company's EPS guidance, with a midpoint between $0.76 and $0.80, also exceeds market consensus and Morgan Stanley's estimate. On the other hand, Steel Dynamics anticipates Q2 earnings to be between $2.64 and $2.68 per diluted share, a decrease from previous quarters.
In terms of analyst ratings, Morgan Stanley maintained a positive outlook on US Steel, while Jefferies adjusted the price target for Steel Dynamics to $135.00 from $150.00, maintaining a Hold rating. Citi has reaffirmed its Buy rating on Steel Dynamics, despite the company's lower earnings guidance.
Steel Dynamics has also announced improved earnings from its metals recycling operations due to increased volumes and repurchased $247 million of its common stock. These are some of the recent developments that provide insights into the companies' financial performance and potential for growth.
InvestingPro Insights
As Steel Dynamics (NASDAQ:STLD) faces headwinds with its second-quarter earnings projections, it's essential to consider additional factors that could influence investor decisions. According to InvestingPro data, the company boasts a robust market capitalization of $19.19 billion and an attractive P/E ratio of 8.34, reflecting a market that still values its earnings power. Furthermore, the company's P/E ratio has adjusted to 7.96 over the last twelve months as of Q1 2024, which could indicate a more favorable investment opportunity compared to industry peers.
InvestingPro Tips highlight that management has been actively buying back shares and that the company has a high shareholder yield, which may be appealing to investors seeking companies with proactive capital return strategies. Moreover, Steel Dynamics has raised its dividend for 11 consecutive years, demonstrating a commitment to consistent shareholder returns. These aspects, coupled with a solid dividend yield of 1.52% as of the latest data, can be particularly attractive to income-focused investors.
For those looking for a deeper dive into Steel Dynamics' financial health and future prospects, InvestingPro offers additional tips, such as the company's ability to cover interest payments with cash flows and its low price volatility. There are 13 additional InvestingPro Tips available for Steel Dynamics, which can be accessed with the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription. These insights may provide a more nuanced understanding of the company's performance and potential, beyond the immediate earnings concerns.
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