Have you been paying attention to shares of Steel Dynamics (STLD)? Shares have been on the move with the stock up 24.8% over the past month. The stock hit a new 52-week high of $132.5 in the previous session. Steel Dynamics has gained 31.2% since the start of the year compared to the 9% move for the Zacks Basic Materials sector and the 23.4% return for the Zacks Steel - Producers industry.
What's Driving the Outperformance?
The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on January 25, 2023, Steel Dynamics reported EPS of $4.37 versus consensus estimate of $3.6 while it beat the consensus revenue estimate by 1.99%.
For the current fiscal year, Steel Dynamics is expected to post earnings of $11.61 per share on $17.83 billion in revenues. This represents a -48.81% change in EPS on a -19.92% change in revenues. For the next fiscal year, the company is expected to earn $8.83 per share on $15.9 billion in revenues. This represents a year-over-year change of -23.94% and -10.84%, respectively.
Valuation Metrics
Steel Dynamics may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.
On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.
Steel Dynamics has a Value Score of B. The stock's Growth and Momentum Scores are A and C, respectively, giving the company a VGM Score of A.
In terms of its value breakdown, the stock currently trades at 11X current fiscal year EPS estimates, which is not in-line with the peer industry average of 11.5X. On a trailing cash flow basis, the stock currently trades at 4.9X versus its peer group's average of 2.3X. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
Zacks Rank
We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Steel Dynamics currently has a Zacks Rank of #1 (Strong Buy) thanks to favorable earnings estimate revisions from covering analysts.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Steel Dynamics meets the list of requirements. Thus, it seems as though Steel Dynamics shares could have potential in the weeks and months to come.
How Does STLD Stack Up to the Competition?
Shares of STLD have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is Nucor Corporation (NUE). NUE has a Zacks Rank of # 1 (Strong Buy) and a Value Score of B, a Growth Score of A, and a Momentum Score of B.
Earnings were strong last quarter. Nucor Corporation beat our consensus estimate by 16.99%, and for the current fiscal year, NUE is expected to post earnings of $12.98 per share on revenue of $30.95 billion.
Shares of Nucor Corporation have gained 22.7% over the past month, and currently trade at a forward P/E of 13.61X and a P/CF of 5.23X.
The Steel - Producers industry is in the top 9% of all the industries we have in our universe, so it looks like there are some nice tailwinds for STLD and NUE, even beyond their own solid fundamental situation.
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