Steel Dynamics Could Set A New All-Time High, Soon Steel Dynamics received a downgrade from Morgan Stanley just hours before the company released its fiscal Q3 earnings report. In hindsight, it seems as though Morgan Stanley may have acted...

New Highs Are In Sight For Steel Dynamics

Steel Dynamics (NASDAQ: STLD) received a downgrade from Morgan Stanley just hours before the company released its fiscal Q3 earnings report. In hindsight, it seems as though Morgan Stanley may have acted hastily with the downgrade because, in our view, this stock is going to new all-time highs very soon. Morgan Stanley's reason for the downgrade is because of steel pricing, pricing that they think has peaked although Steel Dynamics still sees a favorable environment. According to Steel Dynamics outlook, the company sees a fundamentally strong year ahead and one supported by high demand and strong pricing.

"Current market conditions are in place to support solid domestic steel demand for the fourth quarter and into 2022," said Millett. "Order entry activity continues to be robust across our businesses. We continue to see strong steel demand coupled with moderating, but still historically low customer inventories throughout the supply chain. These dynamics support continued elevated steel selling values. Domestic steel demand remains solid in our automotive, construction, and industrial end markets. We believe this momentum will continue and that our fourth quarter consolidated earnings could represent another record performance," said CEO Mark D. Millet.

Steel Dynamics Has A Dynamic Quarter

Steel Dynamics quarter is a tale of two trends. on the one hand, demand is high across all end markets while on the other, pricing is also high across all end markets. This is resulting in not only record results but triple-digit growth that is accelerating on a sequential basis. The company's $5.09 in consolidated revenue is up 118.5% versus the same period last year and is an acceleration of 500 basis points from the previous quarter, those are big numbers and are driven by both the steel processing and fabricating segments.

Moving down, the strong pricing environment drove record results on the bottom line as well. The GAAP earnings of $4.85, however, missed the Marketbeat.com consensus estimate but there is a silver lining. The miss is due to investment in the Sinton flat-roll mill and plans to build out two more finishing lines which mean increased capacity, revenue, and profits. On an adjusted basis, the company earned $4.96 per share or $0.11 better than expected.

Steel Dynamics Is Returning Cash To Shareholders

Steel Dynamics is returning cash to shareholders in the form of buybacks and dividends. The company repurchased $338 million worth of its shares during the quarter which is worth about 3% of the float. This was compounded by the 1.7% dividend yield that we view as safe and growing. The company has been increasing the distribution for the last 11 years and at a high 13% CAGR so we are expecting the 12th increase early in calendar 2022. We are also expecting the company to continue buying back shares as well.

The Technical Outlook: Steel Dynamics Moves Up From Support

Shares of Steel Dynamics are up more than 2.0% in after-hours trading and look like they will continue higher in the near and long term. The price action is confirming support at the 150-day moving average that is in turn supported by the indicators. The indicators are still a little mixed but are also consistent with the early stages of a trend-following entry signal. A move up from here may find resistance at the $70 but it probably won't hold price action up for long. A move above the $70 would be bullish and signal a continuation of the uptrend that began in 2020.