Company Profile (excerpt from Reuters): Steel Dynamics, Inc., incorporated on June 16, 1994, is a steel producing and a metal recycling company. The Company is engaged in the manufacture and sale of steel products, processing and sale of recycled ferrous and nonferrous metals, and fabrication and sale of steel joists and deck products. The Company’s segments include steel operations, metals recycling operations, steel fabrication operations and Other Operations. The Company offers a range of steel products, which include sheet products, long products and steel finishing.
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Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$10,612,900,907||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||3.61||Pass|
|3. Earnings Stability||Positive EPS for 10 years prior||Fail|
|4. Dividend Record||Dividend Payments for 10 years prior||Pass|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||440.11%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||16.29||Pass|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||3.03||Pass|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||3.61||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||0.85||Pass|
|3. Earnings Stability||Positive EPS for 5 years prior||Fail|
|4. Dividend Record||Currently Pays Dividend||Pass|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||15.00%|
|MG Value based on 3% Growth||$40.85|
|MG Value based on 0% Growth||$23.95|
|Market Implied Growth Rate||3.90%|
|% of Intrinsic Value||42.32%|
Steel Dynamics, Inc. qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the insufficient earnings stability over the last ten years. The Enterprising Investor is only concerned with the lack of earnings stability over the last five years. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $0.8 in 2014 to an estimated $2.82 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 3.9% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.
At the time of valuation, further research into Steel Dynamics, Inc. revealed the company was trading above its Graham Number of $39.49. The company pays a dividend of $0.62 per share, for a yield of 1.4% Its PEmg (price over earnings per share – ModernGraham) was 16.29, which was below the industry average of 32.08, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.42.
Steel Dynamics, Inc. performs fairly well in the ModernGraham grading system, scoring a B.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$0.42|
|Number of Consecutive Years of Dividend Growth||5|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||6/1/2018|
|Total Current Assets||$3,817,664,000|
|Total Current Liabilities||$1,058,586,000|
|Shares Outstanding (Diluted Average)||236,945,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$4.91|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$2.82|
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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours. See my current holdings here. This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions. ModernGraham is not affiliated with the company in any manner. Please be sure to review our detailed disclaimer.