6 Sep

Flush with Cash, Steel Companies Face a Problem of Plenty

WRITTEN BY Mark O'Hara FEATURED IN Wall Street Ratings

Cash flows

Steel companies’ cash flows have improved this year amid higher steel prices and margin expansion. For instance, Nucor’s (NUE) free cash flow rose from $12 million in the second quarter of 2017 to $553 million in the second quarter of 2018.

AK Steel (AKS) generated free cash flow of $96 million in the second quarter of 2018 compared to $28 million in the first quarter of 2018 and $147 million in the second quarter of 2017. U.S. Steel Corporation (X) also generated strong cash flows in the second quarter despite its ongoing asset revitalization plan.

Flush with Cash, Steel Companies Face a Problem of Plenty

As their cash flows have improved, steel companies have been looking at avenues to deploy cash. While Steel Dynamics (STLD) has ongoing expansion projects, the company has also announced a $750 million share buyback program. Because steel companies have been generating strong cash flows, share buybacks came up during several of their second-quarter earnings calls. See Analyzing Steel Companies’ Second-Quarter Earnings for a detailed analysis of steel companies’ second-quarter earnings calls.

Analysts’ recommendations

Steel Dynamics has received a “strong buy” ratings from three analysts, while seven have given it “buys” or equivalents. The remaining four analysts polled by Thomson Reuters on September 5 have rated Steel Dynamics as a “hold.” The stock’s mean consensus price target of $53.77 represents a 14.9% upside over its September 5 closing price.

Read The Steel Industry’s Midyear Review: Outlook Gets Murky to look at the steel industry’s near-term drivers.

You can also visit our Basic Materials page for ongoing updates on this industry.

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