Morgan Stanley is initiating coverage of Steel Dynamics (NASDAQ:STLD) with an Overweight rating; STLD is firm's new top pick. US steel supply has been constrained by declining imports. The industry has sufficient capacity to meet only about 80% of domestic demand, which has sparked a wave of rising prices. They believe Steel Dynamics is well positioned to benefit from the import void as a result of growing its production capacity faster than at any other major North American steel producer. Expects secular growth resulting from the company’s increased production base, combined with improving industry fundamentals, to drive earnings growth 8–29% above current consensus estimates over the next three years. Firm believes consensus is missing STLD’s growth potential.
MSCO thinks the market is underestimating the double impact of improving industry fundamentals and strong shipments growth to Steel Dynamic’s bottom line. Consensus EPS estimates are flat from 2008 to 2009, which is inconsistent with the 15% production growth planned for 2009, assuming relatively stable metal margins, which they expect. Firm forecasts EPS of $3.07 in 2008e, $3.54 in 2009e, and $3.85 in 2010e, well above consensus of $2.88, $2.89, and $2.98, respectivel.
Near-term catalyst (April 21). Firm believes the next major earnings revision will occur when the company reports 1Q08 results. They expect management to provide 2Q earnings guidance, and possibly update full-year guidance. Firm recommends that investors build positions in STLD ahead of the earnings release.
Notablecalls: This is a bold move by Morgan Stanley that will not go unnoticed. Expect to see buy interest in STLD today. Also in US Steel (NYSE:X) (upped to Overweight)
I must say I'm somewhat more cautious on the steel names after MSCO's call. The STLD call is actually part of a larger positive Steel call. We may have put in a s-t top in the Steels after today.
MSCO thinks the market is underestimating the double impact of improving industry fundamentals and strong shipments growth to Steel Dynamic’s bottom line. Consensus EPS estimates are flat from 2008 to 2009, which is inconsistent with the 15% production growth planned for 2009, assuming relatively stable metal margins, which they expect. Firm forecasts EPS of $3.07 in 2008e, $3.54 in 2009e, and $3.85 in 2010e, well above consensus of $2.88, $2.89, and $2.98, respectivel.
Near-term catalyst (April 21). Firm believes the next major earnings revision will occur when the company reports 1Q08 results. They expect management to provide 2Q earnings guidance, and possibly update full-year guidance. Firm recommends that investors build positions in STLD ahead of the earnings release.
Notablecalls: This is a bold move by Morgan Stanley that will not go unnoticed. Expect to see buy interest in STLD today. Also in US Steel (NYSE:X) (upped to Overweight)
I must say I'm somewhat more cautious on the steel names after MSCO's call. The STLD call is actually part of a larger positive Steel call. We may have put in a s-t top in the Steels after today.
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