Barclays Maintains Overweight On Steel Dynamics As Q3 Guidance Largely Expected

Steel Dynamics, Inc. (NASDAQ: STLD) guided to lower flat-rolled volumes and a sequentially worse recycling performance for Q3. The guidance overall was largely as anticipated, Barclays’ Matthew J. Korn said in a report. He maintained an Overweight rating on the company, with a price target of $30.

Steel Dynamics projected its Q3 EPS at $0.63-$0.67, lower than Barclay’s estimate of $0.69 and the consensus expectation of $0.71. “Most of the language given in this update matches the outlook given in the 2Q release,” analyst Korn noted.

Lower Volumes

The company did indicate weaker flat-rolled volumes, which was similar to the recent guidance provided by Nucor Corporation (NYSE: NUE).
 

Recycling Performance

The main change was the guidance of a weaker performance in Recycling, Korn mentioned. He added that Steel Dynamics has been witnessing a decline in ferrous and nonferrous volumes in this business during the quarter, while lower scrap prices are adversely impacting ferrous Recycling margins.

Other Guidance

“For core steel ops STLD expects “meaningful spread expansion” offset by lower volumes, in line with our prior expectations. End market commentary was unchanged as energy, agriculture, and heavy equipment remain weak while relative strength in auto and construction markets continues,” the analyst wrote.

Estimates Revised

The near-term outlook for steel stocks appears “quite soft,” with steel prices declining, scrap prices not providing much support, imports rising, and signs of weakening end-market demand, Korn stated. He lowered the EPS estimates for Q3 and 2016 from $0.69 to $0.66 and from $2.07 to $2.05, respectively.

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