Steel Coverage Group

After raising estimates for the current quarter and year to reflect the better-than-expected mid-quarter guidance issued by the management team last week, we examined some of the larger NUE portfolio drivers, looking to gauge the upside and downside risk as it relates to two major issues: (1) the sustainability of the Section 232 trade protections during a new period of US Presidential leadership; and (2) the upside bias associated with the release of a large infrastructure bill. Starting with a $10.00+ and $8.28/share earnings forecast for CY21 and CY22, respectively, already well above consensus, we calculated roughly $1.75-2.00 of potential earnings upside associated with surging demand for niche carbon steel products dedicated for large-volume public construction projects. Conversely, we assume there to be $1.40-1.50/share of earnings dilution risk should President Joe Biden rescind Section-232 trade protections. This implies a +30% risk/reward profile. Continue reading

We rearranged the steel coverage group investment ratings to account for recent trading strength, the divergence between the closing prices and price targets, and higher earnings outlook(s). Today’s actions were triggered by the better-than-expected carbon steel survey results and review of future market drivers. Among the major changes, we upgraded Nucor (NUE) after considering the new earnings outlook and the rising potential for a stimulus trading boost. At the same time, we lowered STLD and RS to OUTPERFORM (versus Strong Buy) following the recent surge in trading. While still positive on these two names, we would be less aggressive. Finally, we referred to the surprising level of bullishness building throughout the channel and strong survey data points. The most interesting takeaway involved steel contacts raising their year-end HRC price forecast by $100-125/ton. Continue reading

We could not identify any negative data points within the 4Q20 earnings release, or subsequent commentary provided by management, to alter the investment rating conviction on Reliance Steel & Aluminum Company (RS). This remains our TOP PICK within the steel space for CY21. Continue reading

Reliance Steel & Aluminum Company (RS) is our TOP PICK for 2021. This morning, we upgraded the shares to a STRONG BUY rating and raised the twelve-month target price to align with our latest estimate revision(s) and to reiterate confidence in the main service center market drivers (reconfirmed by December channel checks). Continue reading

We adjusted our Steel Dynamics (STLD) model to better align with the favorable mid-quarter earnings update issued late last week. Our updated 4QE and CY20 EPS forecasts are now $0.80 and $2.57, respectively (+$0.18), supported by more aggressive profit assumptions across the Steel Mill and Metals Recycling segments. Continue reading

We adjusted our Nucor Corporation (NUE) model to better align with the mid-quarter earnings update issued last week. Our updated 4QE and CY20 EPS forecast are now $1.06 and $3.09, respectively (+$0.26), supported by more aggressive profit assumptions for the Steel Mill and Raw Material operating segments. Continue reading

Broad-based indications of strength are evident throughout the steel channels and there appears to be increasing probability of upward movement in spot market prices (looking out 3-4 quarters). The contact narrative shifted to the unusual carbon sheet and plate supply constraints, heading into a normally seasonal-slow demand period, and future production deficit anxieties.
Nucor Corporation (NUE) issued earnings outlook that may be considered disappointing by The Street. Management provided a 4Q20 EPS guidance range of $1.02-1.07. The language within this morning’s release regarding Steel Mill trends aligns with the feedback collected from our checks. We also heard from Steel Dynamics (STLD) today, which issued an adjusted 4Q20 guidance range of $0.80-0.84, beating expectations. Continue reading

The Nucor Corporation (NUE) management team is likely to reference incremental strength in carbon steel demand, an acceleration in upward spot market price momentum and early contributions from recent investments within the mid-quarter update (expected within the next two weeks). Continue reading

What is the opposite of Steelmageddon? Whatever word just popped into your head is probably the best way to describe current domestic steel industry fundamentals. Following a closer look at the drivers behind the carbon flat rolled markets, and communicating with several channel contacts, we decided to increase our carbon sheet price forecasts and the estimates on STLD. Continue reading

We like the set-up for Reliance Steel & Aluminum Co (RS) heading into next week’s earnings report and reiterate our OUTPERFORM recommendation on the shares. After reviewing all key portfolio drivers, we see very high probability of a 3Q20 earnings beat (and favorable guidance) primarily driven by ferrous and nonferrous metals pricing strength, healthy shipment levels, a tolling recovery, and improved cost position. Continue reading

We are increasing estimates on Steel Dynamics (STLD) to reflect the continued pricing strength within the carbon steel markets, which may push 3Q earnings above the high-point of management’s previously-issued guidance range of $0.46-0.50 and drive Street expectations on 4Q20. Continue reading

We were expecting Steel Dynamics (STLD) to issue a solid mid-quarter update and the company delivered. Management offered a 3Q20 earnings guidance range of $0.46-0.50/share, which compared to the consensus forecasts of $0.41. Continue reading

Nucor Corporation (NUE) kicked off the mini-earnings preview period by issuing a 3Q20 earnings outlook that crushed expectations. Yesterday, the management team offered an EPS guidance range of $0.50-0.55, considerably better than the $0.37 consensus forecast, citing continued strength in Downstream Product volumes/margins and better-than-expected carbon bar and beam mill shipments. Continue reading

We are raising estimates on Steel Dynamics (STLD) to align with a rapidly rising carbon steel price environment and potential market share gains. The domestic mills were able to push the spot quote on hot rolled coil up to $520-530/ton for September deliveries, capitalizing on: relative demand strength; the undersupplied situation; and customer hedging. Continue reading

We recently upgraded the shares of Nucor Company (NUE) to a HOLD recommendation (versus Underperform), which is part of a broader bullish trading call on the domestic steel group. Continue reading

We are calling a bottom and a carbon steel market inflection (and pricing). This is the main driver behind today’s positive trading call on the steel coverage group: Upgrades of Steel Dynamics (STLD) and Nucor Corporation (NUE) and a higher target price applied to Reliance Steel & Alum (RS). Continue reading

Carbon steel demand and mill pricing looks to be approaching a real point of recovery, albeit from a lower-than-expected starting point. Our mid-quarter checks across the entire space recently confirmed that our contacts are expecting a slow/steady improvement in market fundamentals, and there is early channel optimism Continue reading

There appears to be early support for the latest mill price increase attempt on carbon sheet. After reviewing some of the signals coming out of the steel channel this week, we expect at least one-half of the attempted +$40/ton spot adjustment to stick. For the first time since January, our survey is showing a real demand push, in addition to the modest customer sourcing panic developing in the MW region. Continue reading

We are upgrading the shares of Steel Dynamics (STLD) to a HOLD rating as the shares have surpassed our previously-issued twelve-month target price of $27, falling 16% since the early-June downgrade (to underperform). The aggressive trading reaction to carbon scrap price headlines released earlier in the week could be the “final shoe to drop” in the metals & mining space. Continue reading

We are starting formal coverage on Reliance Steel & Aluminum (RS) with an OUTPERFORM recommendation and twelve-month target price of $101/share (suggesting roughly 9% upside versus Wednesday’s closing price). Against the backdrop of relatively cautious near-term expectations for the carbon steel group, driven by weak survey results and falling prices, we believe RS is positioned to meet or beat consensus expectations for CY20 on market share improvements, cost reduction efforts and early upward momentum for nonferrous metals. Continue reading

The carbon steel price retreat started a bit earlier than we expected. Mill quotes for the benchmark HRC product dropped below $500/ton, which should be considered another red flag for the steel mini-mills heading into the 2Q earnings reports. Against the backdrop of weak demand and the lack of buyer urgency, domestic producers are reacting to early restart(s) of previously-idled production capacity. The downturn in pricing seems to be more pronounced across the flat rolled categories. Continue reading

We are initiating coverage on the shares of Nucor Corporation (NUE) with an UNDERPERFORM recommendation and twelve-month target price of $38 (suggesting 11% downside versus the Friday close). Despite the better-than-expected mid-quarter guidance offered by the management team late last week, we are maintaining a cautious view on most of the companies positioned throughout the domestic carbon steel industry, including NUE. Continue reading

Steel Dynamics (STLD) looks interesting at the current price level. In a world where almost everything can be described as weak, distressed, hitting new lows, unprecedented, or uber-bearish, we point to one of the most frequently-overlooked industrial companies in North America, distinctly advantaged versus its peers and protected by its balance sheet, in our view. Today, we are initiating coverage on the shares of STLD with an OUTPERFORM recommendation and a twelve-month target price of $28/share, staying focused on the compelling risk-versus-reward profile, long-term market share opportunities, near-term pricing tailwinds, and projected CapEx ROIs. Continue reading