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Steel Dynamics: How Much Upside Do Analysts See?

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Dec. 6 2018, Updated 1:30 p.m. ET

Steel Dynamics

Among the analysts polled by Thomas Reuters on December 5, three analysts recommended a “strong buy” for Steel Dynamics (STLD), seven recommended a “buy,” and four recommended a “hold.”

Steel Dynamics carries a mean consensus target price of $51.71, which represents an upside of 48.9% over its closing price on December 4. Nucor (NUE) and U.S. Steel Corporation (X) are trading 25.4% and 71.6%, respectively, below their consensus target prices. There weren’t any major changes in Steel Dynamics’ ratings in November. In October, BMO lowered the stock’s target price from $60 to $53 after its third-quarter earnings release.

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New capacity

Steel Dynamics posted record earnings in the third quarter. The company also has a share buyback program in place. Cleveland-Cliffs (CLF) announced a share buyback and reinstated its dividend. Despite steel companies offering generous returns in the form of dividends and buybacks, investors haven’t embraced steel stocks.

Steel Dynamics also announced a 3.0 million ton per annum capacity steel plant last month. However, the entire steel space fell after the announcement amid concerns that the plant would add to steel’s overcapacity. Overcapacity has been the key issue facing the global steel industry. China, which accounts for most of the steel overcapacity, has taken some measures to curtail its excess steel capacity. Despite these measures, there’s still massive overcapacity inside and outside China. From Steel Dynamics’ perspective, new capacity makes business sense. Steel Dynamics was running its plants near full capacity, which didn’t leave much scope for shipment growth.

Next, we’ll discuss how analysts rate AK Steel (AKS).

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