Steel Dynamics Inc. (NASDAQ: STLD) has been under some pressure given the worsening steel and oil prices; however, the steel manufacturer breathed a sigh of relief as the steel prices in China rose by $67 per metric ton in the past week. Berenberg has taken the lead in updating the model for improving steel prices in China and has changed the rating and price target on the stock to account for the impact of such.
Berenberg downgraded the stock on March 03, giving the lack of visibility and no potential upside visibility in near term given the meager price target of $21. Analyst Alessandro Abate of Berenberg has been closely observing the steel prices and believes that the strengthening steel prices have gained momentum and is expected to continue during the short term. Steel prices in China rose about $67 per metric ton, observed Mr. Abate. This has essentially negated any near term risk and downside for the steel manufacturers, but will also help in better ex-China pricing. The lowered risk may also drive better oil pricing in the near term and aid steel dynamics mill in Mississippi regain the volumes.
The price target for the stock has been raised by Mr. Abate to $23.50 and the previous Hold rating, which was given on March 03, has been changed to a Buy. The price target reflects a 7.5x EV/EBITDA multiple, which was at 7x given the previous PT as the 2016 estimates for the company remain unaffected. The analyst also believes that the discount to peers is unjustified and has a clear negative impact.
The analyst opinion on the stock composes of four Strong Buys, 13 Buys, and a Hold rating. The stock price at the close of market on Monday was $20.67.