Steel Dynamics Price Target Trimmed At CLSA On Weak Guidance

Margin Growth Vs. Lower Shipments

Analyst Xiao Feng noted that third-quarter earnings are likely to see sequential improvement, as higher margins from steel operation helped overcome the impact of lower shipments. The improvement in steel realization, according the firm, may help counter higher scrap costs.

Related Link: The Current Environment In The Steel Space

Mixed End Markets

CLSA highlighted Steel Dynamics' commentary of weaker heavy equipment, agriculture and energy markets, continued growth in the construction market, weak steel production hurting earnings of metals recycling operations and sequential margin compression impacting fabrication business.

Low Demand To Hurt Steel Prices

CLSA also noted that weak demand will weigh on steel prices. The firm noted that inventories at U.S. service centers measured in terms of months of shipments fell in August, seen a function extra shipping days in the month, and total shipments were higher month-over-month but down year-over-year.

Estimates, Price Target Trimmed

As such, CLSA lowered its third-quarter earnings per estimate to $0.65 from $0.70 and its 2016 earnings per share estimate to $2 from $2.13, premising the action on weak steel demand. The firm also reduced its 2017 earnings per share estimate to $2.10 from $2.20. Even as the firm maintained its Outperform rating on the shares of the company, it lowered its price target for the shares to $27 from $29.

At time of writing, Steel Dynamics' shares were up 1.12 percent at $24.48.

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