Based in Luxembourg City, Luxembourg, Ternium S.A. (TX) is a manufacturer of steel products in the United States, Mexico, and Argentina, among other countries. The company operates through Steel and Mining segments. TX’s stock has surged 33.2% year-to-date, and 185.5% over the past year owing to a substantial increase in steel shipments in the fourth quarter and investors’ concomitant bullish sentiment on the steel industry.
TX has reported significant earnings growth in its last-reported quarter, driven by strong demand from the construction and commercial markets, and growing demand for durable goods and building materials. The stock is trading just 4.5% below its $40.55 52-week high, which it hit on April 5.
The global stainless steel market size is expected to hit around $168.24 billion by 2027, growing at a 5.84% CAGR, according to Precedence Research. The Biden administration’s proposed $2 trillion infrastructure spending plan is expected to give a significant boost to steel demand, thereby improving steel manufacture TX’s growth prospects.
Here is what we think could shape TX’s performance in the near term:
Solid Industry Backdrop
Despite the negative impact of the COVID-19 pandemic on the steel market last year, the industry quickly rebounded this year, supported by pent-up demand from the construction, automotive and manufacturing sectors. In addition, President Biden’s sizable, proposed, $2 trillion infrastructure spending package, which is aimed at repairing and building roads, bridges, water systems, rail tracks and more, is expected to further bolster the demand for steel in the coming months.
Surging steel prices owing to supply shortages and rising demand, coupled with massive infrastructure spending, have reinforced investors’ optimism in the steel industry. TX is ramping up its production and shipments and is well positioned to capitalize on the trend.
Favorable Analyst Estimates
A $2.31 consensus EPS estimate for the quarter ended March 2021 represents a 3,950% increase year-over-year. The Street expects TX’s EPS to rise 1,013.6% in the next quarter, ending June 2021, 166.6% in the current year, and at a rate of 18.4% per annum over the next five years.
The company’s quarterly revenues are expected to increase 34.7% year-over-year to $3.06 billion in the current quarter, and 72.2% to $3.01 billion in the next quarter. Also, analysts expect TX’s revenues to increase 38.3% year-over-year to $12.08 billion in fiscal 2021.
Impressive Quarterly Performance
TX’s net sales increased 15% year-over-year to $2.58 billion in the fourth quarter ended December 31, 2020. Its Mining segment’s net sales rose 6% from their year-ago value to $105.7 million. It reported $677.2 in operating income compared to $92.2 million in the fourth quarter of 2019. The company’s profit for the period rose 645.9% from the prior-year quarter to $670.6 million. And TX’s EBITDA under the steel segment grew 169.8% year-over-year to $599.4 million over this period.
POWR Ratings Indicate Solid Prospects
TX has an overall A rating, which translates to Strong Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight different categories. The stock has an A grade for Sentiment, and a B for Growth and Momentum. Analysts’ positive expectations about an increase in earnings and revenue account for the Sentiment grade. TX’s strong growth trajectory is in sync with the company’s Growth grade. Also, its price returns year-to-date justifies the Momentum grade.
In addition to the grades we’ve highlighted, one can check out TX Ratings for the Stability, Quality, and Value here.
The stock is ranked #1 of 34 stocks in the A-rated Steel industry.
If you’re looking for other top-rated stocks in the same industry, with an Overall POWR Rating of A or B, you can access them here.
Rising steel prices on the back of a demand/supply imbalance, along with supportive federal government infrastructure initiatives, should keep driving TX’s growth. With the company’s steel shipments reaching 3.1 million tons in the fourth quarter of 2020, up 222,000 tons on a sequential basis, the company has plenty of upside left. Hence, we think the stock is an ideal investment proposition now.
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TX shares were trading at $39.45 per share on Friday morning, up $0.71 (+1.83%). Year-to-date, TX has gained 35.66%, versus a 11.59% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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