EU and US could reach trade deal this weekend - Reuters
On Monday, UBS raised its rating on Steel Dynamics (NASDAQ:STLD) from Neutral to Buy, maintaining a price target (PT) of $149.00. Currently trading at $127.06, the company maintains a "GOOD" financial health score according to InvestingPro analysis. The upgrade follows a significant rally in hot-rolled coil (HRC) prices post-election, fueled by stronger-than-anticipated tariff protection for U.S. steel and aluminum.
Steel Dynamics stock has experienced a downturn in line with the broader market sell-off due to escalating trade tensions. With a market capitalization of $19.1 billion and a P/E ratio of 12.4, UBS analysts believe that potential demand declines will be partially mitigated by reshoring initiatives, including a 25% tariff on downstream goods, and that the import protection’s impact is substantial.
Despite expectations of a decline in steel pricing later in the year, UBS forecasts that Steel Dynamics’ HRC pricing of $800 per short ton is viable even with diminishing demand. This forecast is supported by cost curve support and year-to-date increases in import parity.
The firm also favors Steel Dynamics’ organic growth prospects, citing the company’s projection of approximately $1.2 billion in EBITDA from its Sinton operations and aluminum segment. UBS anticipates that these factors will lead to substantial free cash flow (FCF) yields, estimated at around 10% to 14% by 2026 and 2028, respectively, adjusted for buybacks.
UBS suggests that with the anticipated earnings momentum beginning in the second quarter and the potential for consensus estimates to rise if spot HRC prices remain stable, the current valuation offers an attractive entry point for investors. According to InvestingPro’s Fair Value analysis, the stock appears fairly valued. Discover 8 additional exclusive ProTips and comprehensive financial analysis in the Pro Research Report, available with an InvestingPro subscription.
In other recent news, Steel Dynamics has completed a $1 billion notes offering, comprising $600 million of 5.250% Notes due in 2035 and $400 million of 5.750% Notes due in 2055. The proceeds from this offering are intended for general corporate purposes, including the potential repayment of existing debt. The company also provided guidance for the first quarter of 2025, projecting earnings per share between $1.36 and $1.40, which falls short of previous estimates. Analysts from Citi and KeyBanc have maintained positive ratings on Steel Dynamics, with price targets of $145 and $155, respectively, citing operational improvements and future growth potential.
Steel Dynamics’ Sinton facility has shown significant progress, operating at over 90% utilization, with expectations of profitability in the second quarter of 2025. The company’s aluminum segment is expanding, marked by the casting of its first aluminum ingot and nearing completion of key facilities. Additionally, the recent announcement of a 25% tariff on Canadian imports by President Trump has sparked investor interest, with Steel Dynamics among the companies expected to benefit from reduced competition. These developments reflect the company’s strategic initiatives and market positioning, which continue to draw positive attention from analysts and investors alike.
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