What to Look For in Steel Dynamics Earnings

U.S. steel maker Steel Dynamics Inc. (NASDAQ: STLD) reports fourth-quarter and full-year 2015 earnings after the closing bell Monday, and analysts expect the company to post earnings per share (EPS) of $0.07 on revenues of $1.7 billion. In the year-ago quarter, Steel Dynamics posted $0.36 EPS and revenues of $2.52 billion, and for the 2014 fiscal year EPS came in at $1.22 on $8.76 billion in revenues. Expectations for 2015 call for EPS of $0.69 and revenues of $7.69 billion.

EPS have fallen from $0.29 per share three months ago on weakness in demand for steel, particularly from China. But analysts are seeing a bottom for steel. During January there have been four analyst reports on Steel Dynamics, with the most recent released on Sunday.

The first ratings announcement in 2016 came from Rosenblatt Securities. The analysts initiated coverage on Steel Dynamics with a Buy rating and price target of $21. Barclays later reiterated its Overweight rating but lowered its price target by $2 to $22. Jefferies reiterated its Buy rating a day later and also lowered its price target from $25 to $21. Then on Sunday, Morgan Stanley reiterated its Overweight rating and lowered its price target by $1 to $27.

Morgan Stanley’s reasoning was cited in Barron’s:

During times like this, supply cuts are key to marking a bottom in the cycle. We think the domestic sheet steel producers have the best potential of a near-term positive catalyst from a trade-triggered supply cut. The ongoing trade cases for corrosion-resistant sheet, cold-rolled sheet, and hot-rolled sheet, which cover nearly all carbon products and represent about 15% of U.S. supply, could meaningfully stem the flood of steel imports, and the recent domestic production idlings should turn domestic pricing around. In fact, we are seeing the early signs of sheet price increases off of the bottom.

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Steel Dynamics stock traded at $16.25 in the early afternoon Monday, up about 0.3% for the day in a 52-week range of $15.32 to $23.17. The consensus price target on the stock is $21.89.