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Steel Dynamics Scales New Heights On Record Results

By MarketBeat. Originally published at ValueWalk.

Steel Dynamics

Steel Dynamics Scores Record Results On Strong Demand

Steel Dynamics (NASDAQ:STLD) share prices have been scaling new heights on demand and pricing expectations along with the company’s efforts to expand to meet that demand. The Q1 results not only confirm those expectations but indicate the business is even healthier than the analysts were predicting. The company was able to post record results for all metrics that count despite a $100 per ton decline in price for flat roll steel. The key takeaway is that business is good, earnings are good, demand is good, the outlook is good, expansions are underway, and the coming year should see this company set new record after new record.

Q1 2022 hedge fund letters, conferences and more

Steel Dynamics Has Dynamic Quarter

Steel Dynamics had nothing short of a stellar quarter. The company’s diversified model proved its worth as weakening in one segment was more than offset by strengthening in others. The company reported $5.57 billion in consolidated revenue for a gain of 57.3% over last year. The revenue was driven by growth in 3 of the 4 operating segments and beat the Marketbeat.com consensus estimate by 40 basis points. On a segment basis, Steel production revenue increased by 50% while Fabrication revenue increased by 261%. The Recycling business grew by 23% and the Other category declined by 3%.

Moving down to the earnings, the company experienced margin expansion at both the gross and operating levels. The gross margin improved by roughly 1000 basis points and the adjusted margin expanded by a similar amount to drive a nearly 200% increase in operating profit. Operating income, cash flow, and adjusted EBITDA all set records as well. On the bottom line, the $6.02 in adjusted EPS is up $0.53 from last year and beat the consensus by $0.32 or 560 basis points. Earnings also include an increase in working capital, an increase in the dividend, and repurchases worth 3% of the market cap.

Looking forward, the company did not give any formal guidance for the remainder of the year but did give commentary to the effect it was well-positioned for current market conditions. In our view, the Q1 results have the company set up to outperform the FY consensus by at least 600 basis points and we see upside risk in our own outlook as well.

“Our steel fabrication operations order backlog remains at record volume and forward pricing levels. This combined with continued robust order activity and broad customer optimism, supports strong overall demand dynamics for the construction industry. We believe this overall momentum will continue and that our second quarter 2022 consolidated earnings should represent another record quarterly performance,” the company said in its Q1 press release.

Steel Dynamics Will Up The Dividend Again

Steel Dynamics is a healthy dividend grower with a yield near 1.5%. The payout is incredibly safe at only 8% of the earnings consensus which we know is too low. The company has been increasing for the last 12 years so there is precedent, and the distribution was just increased by 31%. The next increase may not be so large but we are expecting double-digits at the end of the fiscal year.

Turning to the charts, Steel Dynamics is up nearly 2.0% in early trading and tickling the all-time high set in the previous session. Assuming the market likes these results as much as we do, we see this stock moving higher once the session opens. If the market follows through on this move, shares of Steel Dynamics could more than double in size because they are still trading at only 5X earnings.

Steel Dynamics

Should you invest $1,000 in Steel Dynamics right now?

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Article by Thomas Hughes, MarketBeat

Updated on

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