Macquarie Just Hiked Long-Term Steel Dynamics Estimates, Here's Why

In its Thursday morning equities research report, Macquarie analystsAldo Mazzaferro and Stacey Kerelska reiterated an Outperform rating on shares of Steel Dynamics, Inc. STLD, while raising their target price from $25.00 to $26.00. They believe the company can continue to outpace its peers on the back of “a more aggressive growth profile, cost reduction opportunity, and leverage provided by its balance sheet.”

In addition, the firm restated its 2015 EPS estimate of $1.05 while boosting its 2016 and 2017 estimates to $1.75 and $2.00, respectively, from $1.55 and $1.80, correspondingly, following the management’s recent –solid- guidance. The estimates now exclude negative effects from discontinued Mesabi Nugget.

Implications

The report highlights a few implications of the revised model:

• Volumes rose, quarter-over-quarter, in the second quarter, which will be reported in less than a month. The experts explain that benefits from the Columbus mill acquisition “continue to accrue to the company in the form of volume upside and cost synergies… [and] STLD has managed to reduce the new mill’s exposure to the oil & gas market, while moving some volume in value-added products.”
• Macquarie thinks Steel Dynamics “is best positioned due to its growth profile, and also stands to benefit most from the recent trade litigation on galvanized sheet should it be successful” – the company is a major galvanized sheet player in the South.
• Steel Dynamics would also be advantageously positioned in cold rolled or hot rolled products if litigation were to succeed in this area too.