Zacks Report Date: November 02, 2023

Steel Dynamics, Inc. (STLD) Long Term: 6-12 Months Zacks Recommendation: Neutral
(Since: 05/15/23)
$109.02 (Stock Price as of 11/01/2023)
Prior Recommendation: Outperform
Price Target (6-12 Months): $114.00
Short Term: 1-3 Months Zacks Rank: (1-5) 2-Buy

Zacks Style Scores: VGM:B

Value: A Growth: A Momentum: F

Summary Price, Consensus & Surprise(1)

Steel Dynamics’ earnings for the third quarter missed the
Zacks Consensus Estimate while sales beat. The company is
expected to gain from acquisitions as well as strong liquidity
and efforts to expand capacity. It will also benefit from its
investments to beef up capacity and upgrade facilities. The
company is executing a number of projects that should add to
capacity and boost profitability. The electric-arc-furnace (EAF)
flat roll steel mill will strengthen its steelmaking capacity and
value-added product capability. The company also has
adequate liquidity to meet its short-term debt obligation.
However, its operations face challenges from higher input
costs. Weaker selling prices may also impact results in the
fourth quarter. The steel industry is also affected by global
production overcapacity.

Data Overview Sales and EPS Growth Rates (Y/Y %)(1)

52 Week High-Low $136.46 - $90.55
Sales EPS
20 Day Average Volume (sh) 1,429,277

Market Cap $18.1 B

YTD Price Change 11.6%

Beta 1.47

Dividend / Div Yld $1.70 / 1.6%

Industry Steel - Producers

Zacks Industry Rank Top 33% (83 out of 251)

Last EPS Surprise -0.6% Sales Estimates (millions of $)(1)

Q1 Q2 Q3 Q4 Annual*
Last Sales Surprise 0.7%

EPS F1 Est- 4 week change -2.1% 2024 4,074 E 4,166 E 4,055 E 3,901 E 16,384 E
2023 4,893 A 5,082 A 4,587 A 4,105 E 18,774 E
Expected Report Date 01/24/2024
2022 5,570 A 6,213 A 5,652 A 4,826 A 22,261 A
Earnings ESP -4.1%
EPS Estimates(1)
P/E TTM 6.5 Q1 Q2 Q3 Q4 Annual*

P/E F1 7.5 2024 2.17 E 2.37 E 2.41 E 2.30 E 9.16 E

PEG F1 NA 2023 4.01 A 4.81 A 3.47 A 2.45 E 14.45 E

2022 6.02 A 6.73 A 5.46 A 4.37 A 22.68 A
P/S TTM 0.9
*Quarterly figures may not add up to annual.

1) The data in the charts and tables, including the Zacks Consensus EPS and sales estimates, is as of 11/01/2023.
2) The report's text and the price target are as of 11/02/2023.

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 Overview
Based in Fort Wayne, IN, Steel Dynamics, Inc. is among the leading
steel producers and metal recyclers in the United States. It currently has
steelmaking and coating capacity of around 16 million tons. It is one of
the most diversified steel companies in United States with a vast range
of specialty products. The company makes and markets steel products,
processes and sells recycled ferrous and nonferrous metals, and
fabricates and sells steel joist and decking products in the United States
and internationally.

Steel Dynamics operates through three segments – Steel Operations

(65% of revenues in 2022), Metals Recycling Operations (10%) and
Steel Fabrication Operations (19%). Other operations, which include
subsidiary operations, accounted for the balance of revenues in 2022.

Steel Operations: The unit produces steel from ferrous scrap and scrap
substitutes and consists of six electric arc furnace steel mills. It mainly
consists of steelmaking and coating operations. Products made at the
unit are used in a number of industries including construction,
automotive, manufacturing and transportation.

Metals Recycling Operations: The operations of the division include

ferrous and nonferrous scrap metal processing, transportation, marketing
and brokerage services. The unit purchases, processes and resales
ferrous and nonferrous scrap metals into reusable forms and grades.
End-users of these products include electric arc furnace steel mills, As of 11/01/2023
integrated steelmakers, foundries, secondary smelters and metal
brokers.

Steel Fabrication Operations: The unit produces steel building components, including steel joists, girders, trusses and steel deck. The division’s
main customers are non-residential steel fabricators.

Steel Dynamics, in 2018, acquired Heartland Steel Processing, LLC from CSN Steel, S.L.U., for $400 million. Heartland produces a range of
higher-margin, flat roll steel by further processing hot roll coils into cold roll, pickle and oil and galvanized products. It has the capability to
produce 1 million tons of cold roll steel annually. It has a continuous pickle line, a cold mill and a galvanizing line. Moreover, its equipment is well-
maintained, upgraded and in excellent operating condition.

As of 11/01/2023

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 Reasons To Buy:
Steel Dynamics' customer-focused approach along with market diversification and low-cost Steel Dynamics should
operating platforms positions the company for future growth opportunities. The company gain from strong liquidity,
should gain from its investments to beef up capacity and upgrade facilities. Its $100 million acquisitions and its efforts
investment in the new paint line at Columbus Flat Roll division provided 250,000 tons of to expand capacity. The
annual coating capability into some of Steel Dynamics’ high margin products. The Columbus electric-arc-furnace flat roll
expansion will enable the company to manufacture double-width steel and sell in the south- steel mill provides
eastern markets, including Mexico. The investment in a third galvanizing line will also further additional growth
boost Columbus' value-added capability. Moreover, the start-up of the new 400,000-ton value- opportunities.
added metallic coating line at Columbus reduces hot-rolled coil exposure. The company also
successfully transformed Columbus’s cyclical earnings capability by reducing operating
costs, boosting value-added product capabilities and diversifying its customer base and end
markets. In sync with its flat roll steel growth initiatives, the company is also adding four additional value-added flat roll steel coating lines
consisting of two paint lines and two galvanizing lines, which are expected to be commissioned in first-quarter 2024. It is also investing $2.2
billion in a new state-of-the-art low-carbon aluminum flat rolled mill and two aluminum slab centers continues its strategic growth.

The company should benefit from its strategic acquisitions. The acquisition of Heartland is expected to increase Steel Dynamics' total
shipping capability and annual flat roll steel shipping capacity to 12.4 million tons and 8.4 million tons, respectively. The additional exposure to
lighter-gauge and greater width flat roll steel offerings will also expand its portfolio of value-added products, strengthening Steel Dynamics’
position as a leading steel producer in North America. The company expects annual synergies related to Heartland in the range of $10-$15
million. The buyout of Severstal Columbus has also expanded Steel Dynamics' annual steel shipping capacity and provided the company with
geographic diversification and an exposure to the high-growth oil country tubular goods and automotive markets. Moreover, the acquisition of
a majority stake in United Steel Supply enables Steel Dynamics to expand its painted Galvalume value chain. The buyout is expected to fuel
growth in one of the company’s highest-margin flat-roll steel products. It will also contribute to shipments. The company also purchased
Zimmer, S.A. de C.V. to support its raw material procurement strategy at its new Texas flat roll steel mill.

Steel Dynamics is also currently executing a number of projects that should add to capacity and boost profitability. Notably, it invested around
$1.9 billion to build a new EAF flat roll steel mill in Sinton, TX that is expected to have a production capacity of roughly 3 million tons per year.
It will have the capability to make the latest generation of advanced high strength steel products. The company expects this investment to
allow it to cost effectively serve the customers in this growing flat roll steel consuming region and enhance its steelmaking capacity and value-
added product capability. Moreover, the company believes that the project will create long-term value through its value-added products and
geographic diversification. Steel Dynamics has targeted regional markets that represent more than 27 million tons of relevant flat roll steel
consumption. This includes the growing Mexican flat roll steel market.

The company is poised to benefit from strong cash flow generation and execution of its long-term strategy. It generated record cash flow from
operations of $4.5 billion in 2022. It also ended the most recent quarter, with record liquidity of around $3.7 billion including roughly $1.8
billion of cash. Also, Steel Dynamic’s long-term debt was around $3 billion at the end of third-quarter 2023 while its short-term debt was
around $86 million. It has ample liquidity to meet its short-term debt obligations.

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 Reasons To Sell:
The company’s steel operations face challenges from higher steel raw material costs. The The company's operations
Russia-Ukraine conflict has disrupted the supply of pig iron, a major raw material. Higher steel face challenges from
raw material costs are likely to put pressure on margins in this unit over the near term. The higher input costs. The
company’s flat-rolled steel mills are facing headwinds from higher pig iron costs, partly due to outage at Sinton may also
tight supply. The inflationary pressure is likely to continue over the short haul. impact volumes. The
overcapacity in the steel
U.S. steel prices have witnessed a sharp downward correction. The benchmark hot-rolled coil industry is another
(HRC) prices have retracted from their April 2023 peak of around $1,200 per short ton. Prices concern.
have fallen more than 40% from the highs hit in April. The downward drift partly reflects
shorter lead times. The United Auto Workers strike against General Motors, Ford and
Stellantis also weighed on HRC prices of late. The impacts of weaker steel prices are
expected to reflect on the performance of Steel Dynamics in the fourth quarter. Lower average realized selling prices are likely to impact its
top line and margins.

The steel industry is still reeling under sustained overcapacity. China, which accounts for more than half of the global steel output, is a
significant contributor to global steel excess capacity. China’s steel output clocked 1.01 billion tons in 2022. Elevated steel output in China
led to high levels of finished steel inventories in the country. The steel glut ignited concerns of China flooding global markets with cheap steel
exports. Notwithstanding Beijing’s actions to control production to reduce carbon emissions, production in China is likely to remain at high
levels, aided by healthy domestic demand and strong profit margins.

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 Last Earnings Report
Lower Steel Prices Hurt Steel Dynamics’ Earnings in Q3 FY Quarter Ending 12/31/2022

Steel Dynamics logged earnings of $3.47 per share in third-quarter 2023, down from $5.03 per Earnings Reporting Date Oct 18, 2023
share in the year-ago quarter. It lagged the Zacks Consensus Estimate of $3.49.
Sales Surprise 0.73%

Net sales in the third quarter were down around 19% year over year to roughly $4.59 billion. It, EPS Surprise -0.57%
however, surpassed the Zacks Consensus Estimate of $4.55 billion. Quarterly EPS 3.47
Annual EPS (TTM) 16.66
The company’s results were hurt by lower realized flat rolled steel and steel fabrication prices
in the reported quarter. It, however, witnessed steady steel demand and customer order
activities during the quarter.

Segment Highlights

Net sales for steel operations were $3.1 billion in the reported quarter, down around 16% year over year. The company registered steel
shipments of 3.1 million tons in the quarter, modestly down from 3.15 million tons a year ago. This compares to our estimate of 3.26 million tons.

Steel Dynamics’ steel operations reported an average external product selling price of $1,191 per ton, down from $1,381 per ton in the year-ago
quarter. It surpassed our estimate of $1,134 per ton.

Net sales of Metal’s recycling operations were $520.7 million in the quarter under review, reflecting an increase of around 10% from the year-
ago quarter. Steel Dynamics registered ferrous shipments of around 1.44 million gross tons in the quarter, up from 1.32 million gross tons a year
ago. The figure was ahead of our estimate of 1.39 million gross tons.

The company's steel fabrication operations raked in sales of around $630.2 million, down around 45% year over year. Steel Dynamics registered
steel fabrication shipments of 161,697 tons in the quarter, down from 218,441 tons. The figure fell short of our estimate of 178,451 tons.

Financial Position

Steel Dynamics ended the quarter with cash and cash equivalents of around $1.77 billion, up around 24% year over year. Long-term debt was
roughly $3 billion, essentially flat year over year.

The company generated $1.1 billion of cash flow from operations in the quarter. It also repurchased $331 million of its common stock during the
quarter, representing 1.8% of its outstanding shares.

Outlook

Steel Dynamics stated that it is seeing solid order entry activities across its steel operations as demand remains steady. It anticipates North
American steel consumption to rise in the coming years, with increased demand for lower-carbon emission, U.S.-made steel products and a
decline in import levels supporting steel prices.

Continued onshoring of manufacturing businesses along with expectations of significant fixed asset investment from public funding related to the
U.S. Infrastructure, Inflation Reduction Act, and Department of Energy programs, are expected to position the domestic steel industry
competitively. The company believes this will help all of its operational platforms, particularly the steel and steel fabrication business.

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 Valuation
Steel Dynamics’ shares are up 18% over the trailing 12-month period. Over the past year, the Zacks Steel - Producers industry and the Zacks
Basic Materials sector are up 24% and 8.8%, respectively.

The S&P 500 index is up 12.3% in the past year.

The stock is currently trading at 6.77X trailing 12-month enterprise value-to EBITDA (EV/EBITDA) ratio, which compares to 10.06X for the Zacks
sub-industry, 9.86X for the Zacks sector and 12.52X for the S&P 500 index.

Over the past five years, the stock has traded as high as 19.67X and as low as 6X, with a 5-year median of 9.09X.

Our Neutral recommendation indicates that the stock will perform in line with the market. Our $114 price target reflects 11.34X forward 12-month
earnings per share.

The table below shows summary valuation data for STLD:

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 Industry Analysis(1)Zacks Industry Rank: Top 33% (83 out of 251) Top Peers(1)
Company (Ticker) Rec Rank
Ternium S.A. (TX) Outperform

United States Steel Corporation (X) Outperform

Commercial Metals Company (CMC) Neutral

Carpenter Technology Corporation Neutral

(CRS)
L.B. Foster Company (FSTR) Neutral

Timken Steel Corporation (TMST) Neutral

Cleveland-Cliffs Inc. (CLF) Underperform

ArcelorMittal (MT) Underperform

Industry Comparison(1)Industry: Steel - Producers Industry Peers

STLD X Industry S&P 500 CLF MT X

Zacks Recommendation (Long Term) Neutral - - Underperform Underperform Outperform

Zacks Rank (Short Term) - -

VGM Score - -
Market Cap 18.06 B 3.30 B 29.16 B 8.46 B 17.75 B 7.64 B
# of Analysts 4 2 16 5 5 4
Dividend Yield 1.56% 1.53% 1.75% 0.00% 0.85% 0.58%
Value Score - -
Cash/Price 0.13 0.24 0.05 0.00 0.33 0.43
EV/EBITDA 3.42 3.31 12.64 3.83 1.44 2.03
PEG Ratio -0.21 1.27 1.98 NA NA NA
Price/Book (P/B) 2.08 0.67 2.94 1.02 0.31 0.69
Price/Cash Flow (P/CF) 4.18 2.77 11.75 3.29 1.35 2.20
P/E (F1) 7.54 8.29 16.69 15.02 4.57 8.17
Price/Sales (P/S) 0.93 0.40 2.36 0.39 0.24 0.42
Earnings Yield 13.53% 11.37% 5.94% 6.68% 21.91% 12.23%
Debt/Equity 0.35 0.27 0.62 0.42 0.15 0.37
Cash Flow ($/share) 26.11 4.13 8.89 5.10 16.38 15.59
Growth Score - -
Hist. EPS Growth (3-5 yrs) 60.04% 48.50% 9.90% 23.81% 40.98% 40.31%
Proj. EPS Growth (F1/F0) -36.29% -36.83% 6.18% -63.28% -58.43% -57.89%
Curr. Cash Flow Growth 24.87% -11.20% 5.90% -39.24% -24.12% -22.71%
Hist. Cash Flow Growth (3-5 yrs) 37.29% 16.72% 9.31% 61.99% 9.86% 33.22%
Current Ratio 3.77 2.22 1.25 2.11 1.63 1.95
Debt/Capital 26.80% 21.18% 39.62% 29.50% 13.00% 27.12%
Net Margin 13.73% 3.41% 11.75% 1.55% 5.77% 6.30%
Return on Equity 34.31% 9.51% 17.68% 5.16% 9.88% 11.67%
Sales/Assets 1.34 1.08 0.55 1.19 0.78 0.92
Proj. Sales Growth (F1/F0) -15.70% -5.15% 4.66% -4.30% -11.10% -15.20%
Momentum Score - -
Daily Price Chg 2.36% 0.14% 1.05% -0.12% 0.09% 1.06%
1 Week Price Chg 5.21% 2.17% 1.22% 9.94% 2.17% 5.50%
4 Week Price Chg 2.31% 0.00% -0.61% 10.34% -8.24% 5.03%
12 Week Price Chg 4.26% -6.25% -5.14% 7.64% -18.25% 45.07%
52 Week Price Chg 18.04% 14.97% 12.72% 36.93% 1.19% 76.64%
20 Day Average Volume 1,429,277 35,499 2,240,776 10,702,156 2,381,536 5,010,347
(F1) EPS Est 1 week change -0.29% 0.00% 0.00% -8.97% 0.00% 0.00%
(F1) EPS Est 4 week change -2.06% -1.23% 0.00% -14.42% -7.59% 0.12%
(F1) EPS Est 12 week change -8.02% -6.45% 0.20% -24.25% -8.91% -1.59%
(Q1) EPS Est Mthly Chg -15.62% -4.30% -0.27% -71.28% -37.46% -14.29%

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 Zacks Stock Rating System
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