Following a sharp decline in prices owing to depressed demand during the first half of 2020, the steel industry is making a gradual comeback. This is evidenced by VanEck Vectors Steel ETF’s (SLX) 54.1% returns over the past six months. Rising demand from the construction and automotive sectors are the key drivers accelerating the U.S. steel industry.
The infrastructure sector is expected to be a major source of demand for the steel industry over the long term. President Biden proposes to invest $1.30 trillion, spread over 10 years, to rebuild and upgrade U.S. infrastructure. Thus, the steel industry has the potential to grow significantly over the long term.
Against this backdrop, we think stocks currently worth considering in the steel space are ArcelorMittal (MT), Nucor Corporation (NUE), Steel Dynamics, Inc. (STLD) and Reliance Steel & Aluminum Co. (RS). These companies have demonstrated great resilience in navigating the macroeconomic headwinds and the challenging operating environment caused by the COVID-19 pandemic.
MT owns and operates steel manufacturing and mining facilities through five segments: NAFTA; Europe, Brazil, Africa and Commonwealth of Independent States (ACIS), and Mining. The company sells its products to various customers in the automotive, appliance, engineering, construction, energy, and machinery industries through a centralized marketing organization and through distributors.
This month , MT announced the sale of 40 million Cleveland-Cliffs common shares, which generated gross proceeds of $651.6 million. The proceeds will be used for a new share buyback program for ArcelorMittal common shares to improve shareholder value.
In December, MT signed an investment agreement with Invitalia to recapitalize its subsidiary, AM InvestCo. The agreement involves investment in lower-carbon, steel-making technologies and seeks to hit eight million tonnes of production by 2025.
MT’s sales have increased 6.9% sequentially to $14.18 billion in the fourth quarter ended December 31, 2020. Its operating income has risen 178.3% from the prior quarter to $2 billion, yielding an operating margin of 14.1%, up 870 basis points sequentially. And its EPS has improved 481% sequentially to $1.22 over the same period.
Analysts expect MT’s revenues to grow slightly year-over-year to $15.06 billion in the current quarter, ending March 31, 2021. A consensus EPS estimate of $1.56 for the current quarter represents a 378.6% improvement from its year-ago value. The stock has gained 100.3% over the past six months.
MT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
MT has a B grade for Growth, Quality and Value and an A for Sentiment. Within the A-rated Steel Industry, it is ranked #5 of 35 stocks.
In total, we rate MT on eight different levels. Beyond what we stated above, we also have given MT grades for Stability and Momentum. Get all of MT’s ratings here.
Nucor Corporation (NUE)
NUE operates as a steel production company through three segments: steel mills, steel products and raw materials. It also processes ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig iron, hot briquetted iron (HBI) and DRI. The company offers its products through its in-house sales forces and internal distribution and trading companies.
Last November, NUE signed a 15-year Virtual Power Purchase Agreement (VPPA) with EDF Renewables North America (EDFR) for 250 megawatts (MWac) of new solar energy in Texas. This addition of more clean power to the regional grid via the agreement demonstrates Nucor’s commitment to sustainable steelmaking.
NUE’s net sales have increased 2.5% year-over-year to $5.26 billion in the fourth quarter, ended December 31 Its EBIT has risen 22.2% from its year-ago value to $217.77 million, while its net income has increased 217.2% to $425.87 million over the same period. Its EPS has improved 274.3% year-over-year to $1.31 over the three-month period.
Analysts expect NUE’s revenues to grow 25.2% year-over-year to $7.04 billion in the current quarter, ending March. A consensus EPS estimate of $2.23 for the current quarter represents a 125.3% improvement from the year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 23.7% over the past six months.
NUE has an overall B rating, which equates to Buy in our POWR Ratings system. NUE has a B grade for Growth. In the same industry, the stock is ranked #13.
Click here to see the additional POWR Ratings for NUE (Quality, Momentum, Value, Stability and Sentiment).
Steel Dynamics, Inc. (STLD)
Based in Indiana, STLD is one of the largest domestic steel producers and metals recyclers, with facilities located throughout the United States, and in Mexico. The company is engaged in the manufacture and sale of steel products, processing and sale of recycled ferrous and nonferrous metals, and fabrication and sale of steel joists and deck products.
On February 1, Fortune named STLD one of the 2021 World’s Most Admired Companies, based on key attributes, including innovation, people management, social responsibility, quality of management, quality of products/services, and global competitiveness. Steel Dynamics ranked No. 1 within the metals industry. This demonstrates STLD’s highest standard of operational and financial performance.
Last October, the company executed its third investment grade notes offering, issuing $350 million of 1.650% notes due 2027 and $400 million of 3.250% notes due 2050. The proceeds of these offerings were used to repay $350 million of the company’s 4.125% senior notes, due 2025, and for other general corporate purposes.
STLD’s net sales have increased 10.7% year-over-year to $2.60 billion in the fourth quarter, ended December 31, 2020. Its adjusted EBITDA has risen 35.6% from its year-ago value to $366.70 million, while its net income has increased 59.2% to $196.95 million over the same period. Its EPS has improved 58.9% year-over-year to $0.89 over the three-month period.
Analysts expect STLD’s revenues to grow 24.6% year-over-year to $3.21 billion in the current quarter, ending March 31, 2021. A consensus EPS estimate of $1.6 for the current quarter represents an 81.8% improvement from its year-ago value. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in each of the trailing four quarters. The stock has gained 35.5% over the past six months.
STLD has a B grade of B for Sentiment in our POWR Ratings system. The stock is ranked #22 of 35 stocks in the same A-rated industry.
Click here to see the additional POWR Ratings for STLD (Quality, Stability, Value, Growth, and Momentum)
Reliance Steel & Aluminum Co. (RS)
RS is a leading global diversified metal solutions provider and the largest metals service center company in North America. Through a network of approximately 300 locations, RS provides value-added metals processing services and distributes a full line of more than 100,000 metal products to customers in a broad range of industries. The company focuses on small orders with quick turnarounds and increasing levels of value-added processing.
In January, RS announced director succession and leadership promotions. Effective January 15,Karla Lewis was promoted to President and appointed the company’s Board of Directors, consistent with the Board’s executive leadership succession plan. Reliance also announced the promotion of Arthur Ajemyan to Vice President, Chief Financial Officer.
During the fourth quarter of 2020, Reliance repurchased approximately 0.3 million shares of its common stock at an average cost of $108.43 per share, for a total of $37.1 million.
RS’ net sales have increased 2.3% sequentially to $2.13 billion in the fourth quarter, ended December 31 Its gross profit has risen 4.1% from the previous quarter to $703.60 million, yielding a gross profit margin of 33%, up 60 basis points sequentially. Its EPS has improved 33.1% sequentially to $2.01 over the same period.
Analysts expect RS’ revenues to grow 12.5% year-over-year to $9.91 billion in the fiscal 2021 ending December 31. A consensus EPS estimate of $8.57 for the current year represents an 11.2% improvement year-on-year. The company has an impressive earnings surprise history; it beat the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 20.1% over the past six months.
RS’ POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy in our rating system. RS also has an A grade for Quality. It is currently ranked #15 of 35 stocks in the same industry.
We also have given RS grades for Momentum, Stability, Value, Growth and Sentiment. Get all of RS’ ratings here.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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MT shares were unchanged in after-hours trading Friday. Year-to-date, MT has gained 4.41%, versus a 4.32% rise in the benchmark S&P 500 index during the same period.
About the Author: Rishab Dugar
Rishab is a financial journalist and investment analyst. His investment approach is to focus on quality stocks, trading at low prices, with business models that he readily understands. More...
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