Ukraine and Russia are the top suppliers of pig-iron ore, a crucial component in steel production, to the United States. The war between the two countries and consequent import sanctions on Russia have caused a supply shortage in the steel market and fueled an increase in the price of pig-iron ore by 50%. According to a December U.S. Chamber of Commerce survey, the commercial construction industry found that the high price of steel combined with product shortages could stall the post-pandemic commercial construction recovery.
Despite these headwinds, the Biden administration's initiative to help the domestic steel industry by mandating American steel be used in infrastructure projects receiving federal funding could benefit the steel industry. Also, according to The World Steel Association, steel demand will grow by 0.4% in 2022 to 1,840.2 Mt. The iron and steel market are projected to reach $1883.88 billion by 2026, growing at a 2.9% CAGR.
Therefore, we think it could be wise to invest in fundamentally sound steel stocks Steel Dynamics, Inc. (STLD) and United States Steel Corporation (X), whose stock is up more than 25% year-to-date.
Steel Dynamics, Inc. (STLD)
STLD, along with its subsidiaries, functions as a steel producer and metal recycler in the United States. Steel Operations; Metals Recycling Operations; and Steel Fabrication Operations are the company's three operational segments. The company is headquartered in Fort Wayne, Indiana.
In February, STLD announced the completion of its acquisition of a minority equity interest in New Process Steel, L.P. New Process Steel is a metals solutions and distribution supply-chain management company headquartered in Houston, Tex. During the first quarter ending March 31, 2022, STLD's net sales increased 57.1% year-over-year to $5.57 billion. Its operating income grew 151.6% year-over-year to $1.49 billion, while its net income attributable to STLD increased 156.4% from its prior-year quarter to $1.10 billion. The company's EPS rose 181.3% year-over-year to $5.71.
The $6.17 consensus EPS estimate for the second quarter, ending June 30, 2022, represents an 81.3% improvement year-over-year. Analysts expect STLD's revenue to increase 37.2% year-over-year to $6.13 million during the same period. In addition, it has an impressive earnings surprise history; it surpassed the consensus EPS estimates in each of the trailing four quarters. The stock has gained 41% in price year-to-date and 64.8% over the past three months.
STLD's POWR Ratings reflect this promising outlook. The company has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 distinct factors, each with its own weighting.
STLD is also rated an A grade for Momentum and a B grade for Growth and Quality. Within the A-rated Steel industry, it is ranked #16 of 34 stocks.
To see additional POWR Ratings for Value, Stability, and Sentiment for STLD, click here.
United States Steel Corporation (X)
X produces and sells flat-rolled and tubular steel products primarily in North America and Europe. The Pittsburgh, Pa.-based company has four operating segments: North American Flat-Rolled (Flat-Rolled); Mini Mill; U. S. Steel Europe (USSE); and Tubular Products (Tubular).
In February, X announced that it would be improving its metallics strategy by insourcing pig iron capabilities at Gary Works. The approximately $60 million investment will produce up to 500,000 tons of pig iron annually and provide improved raw material input for its electric arc furnaces (EAF). The Gary Works pig iron production is expected to provide nearly 50% of Big River Steel's other ore-based metallics needs, contribute more than $30 million of run-rate enterprise EBITDA benefits and deliver an internal rate of return in excess of 30%.
For its fourth quarter, ended Dec. 31, 2021, X's net sales increased 119.4% year-over-year to $5.62 billion. Its adjusted EBITDA grew 1886.2% from its year-ago value to $1.73 billion, while its adjusted net earnings amounted to $1.04 billion. Versus a $60 million loss in the prior-year quarter. The company's adjusted EPS came in at $3.64 compared to a $0.27 loss per share in the previous period.
Analysts expect X's revenue to increase 43.7% year-over-year to $5.26 billion for the first quarter, ending March 31, 2022. The $2.95 consensus EPS estimate for the same period represents a 173.3% improvement year-over-year. The company's shares have soared 32.7% in price year-to-date and 69.8% over the past three months.
X's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has an A grade for Value and Growth and a B grade for Quality. In the Steel industry, it is ranked #14.
In total, we rate X on eight distinct levels. Beyond what we have stated above, we have also given X grades for Momentum, Stability, and Sentiment. Get all the X ratings here.
STLD shares were trading at $89.86 per share on Wednesday morning, up $2.32 (+2.65%). Year-to-date, STLD has gained 45.36%, versus a -11.43% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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