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Steel Dynamics (STLD) Up 14.7% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Steel Dynamics (STLD). Shares have added about 14.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Steel Dynamics due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Steel Dynamics' Earnings and Sales Top Estimates in Q3

Steel Dynamics logged net income of $100 million or 47 cents per share in third-quarter 2020, down from $151 million or 69 cents in the year-ago quarter.

Barring one-time items, adjusted earnings per share came in at 51 cents, which topped the Zacks Consensus Estimate of 47 cents.

Net sales in the quarter fell roughly 8% year over year to $2,330.8 million. Nevertheless, the figure beat the Zacks Consensus Estimate of $2,190.8 million. The company saw a strong recovery in domestic steel demand, especially in automotive, during the quarter. It also witnessed a recovery in flat roll steel spot prices.

Segment Highlights

Net sales in the company's steel operations declined around 12% year over year to $1,696.5 million in the reported quarter. Operating income fell roughly 40% year over year to $143.6 million. Average product selling price for the unit declined roughly 9% year over year to $734 per ton in the reported quarter. Steel shipments fell 1% year over year to roughly 2.68 million tons.

The company's fabrication operations raked in sales of $241.5 million, down around 2% year over year. Operating income rose roughly 11% to $39.3 million on a year-over-year basis.

Net sales in metals recycling operations slipped roughly 3% year over year to $272.5 million. The segment’s posted operating income of $15.5 million against operating income of $2.9 million in the year-ago quarter.

Financial Position

Steel Dynamics ended the third quarter with cash and cash equivalents of $1,267.6 million, up 11% year over year. Long-term debt was around $2,636.6 million, up 12% year over year.

The company generated $151.8 million of cash flow from operations in the third quarter.

Outlook

Steel Dynamics stated that it expects sustained customer demand and pricing strength through the remainder of 2020 and into 2021. The automotive sector has witnessed the strongest recovery while construction remained resilient. However, softness remains in the energy market, the company noted.
 

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 33.64% due to these changes.

VGM Scores

Currently, Steel Dynamics has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Steel Dynamics has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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