A Rebound In Steel Prices Is Already Baked Into Steel Dynamics Value, Says Bank Of America

A rebound in steel prices is already priced into the shares of Steel Dynamics, Inc. STLD, according to a Bank of America Merrill Lynch note from Thursday.

Analyst Timna Tanners noted that the company's CEO Mark Millet spoke of an approaching inflection point in steel prices. 

Bank of America Merrill Lynch expects third quarter peak-conditions metal margin performance of $489 per ton declining to $467 in the fourth quarter of 2016 and averaging at $457 per ton in 2017.

Among the things the bank does like are its variable cost structure, steady margins, and exposure to growing non-residential construction market. However, the firm expressed discomfort at the high-margin, rail and engineered bar products.

Citing weak volume outlook, the firm lowered its fourth quarter earnings per share estimate to $0.31 from $0.46. The 2017 estimate is reduced to $1.95 from $2.

The firm attributed the Neutral rating to its view that steel prices are likely past the peak and volumes have also peaked. The price target was increased to $28 from $27.

Bank of America Merrill Lynch said Steel Dynamics remains a top pick in U.S. steels due to its value and historical strategic cash uses for growth.

The stock close down $0.20 to $26.35 on Friday.