Steel Earnings: Can Steel Dynamics, Nucor, Cleveland-Cliffs Surmount Peak Steel Price Worry?

Steel Earnings: Can Steel Dynamics, Nucor, Cleveland-Cliffs Surmount Peak Steel Price Worry?

Steel Earnings: Can Steel Dynamics, Nucor, Cleveland-Cliffs Surmount Peak Steel Price Worry?

Steel Dynamics (STLD) kicks off a big week for steel stock earnings after Monday’s close. Nucor (NUE) earnings are due Thursday afternoon and Cleveland-Cliffs (CLF) reports early Friday. Record profits are expected across the board. But the week started with a downer as Morgan Stanley slashed its price target for STLD, NUE and CLF stocks, as well as U.S. Steel (X).




X



Analyst Carlos De Alba says he expects investor worries that steel prices have peaked to weigh on steel stocks, working against any near-term rally. De Alba downgraded STLD stock to equal weight from overweight, cutting his price target to 61 from 77. NUE stock’s price target went to 105 from 115 and CLF’s target to 21 from 26.

Meanwhile, Morgan Stanley cut U.S. Steel to underweight from overweight and axed its X stock price target to 17 from 35. On top of peak price worries, De Alba noted U.S. Steel’s big spending plans. U.S. Steel earnings will follow on Oct. 29.

So is Morgan Stanley too bearish? This week’s earnings reports will help Wall Street gauge how long the good times can last.

STLD, NUE, CLF Earnings Estimates

Steel Dynamics earnings are seen exploding to $4.95 from 51 cents a year ago. Revenue is expected to more than double to $4.99 billion.

Nucor is expected to earn $7.21 per share, up more than 900% from 63 cents a year ago, as revenue doubles to $10.10 billion.

Cleveland-Cliffs earnings per share also should be off the charts, though that’s partly because year-ago results didn’t account for the its purchase of ArcelorMittal‘s (MT) USA operations. That deal closed in December. CLF earnings are expected to rise to $2.22 per share vs. 4 cents a year ago. Revenue is seen up 240% to $5.65 billion.

Steel Stocks: STLD, NUE, CLF, X

Despite the bearish Morgan Stanley call, steel stocks rallied off their lows on Monday. STLD stock rose 0.9% to 62.42, after trading as low as 59.30. Meanwhile, Nucor climbed 0.7% and CLF stock dipped 0.4%. X stock, though well off its lows, was still down 1.2%.

From a broader perspective, the four steel stocks have all lost momentum after big runs over the past year. But they’re trying to move higher again.

On a positive note, Steel Dynamics, Cleveland-Cliffs and Nucor stock are holding above their 21-day moving averages and arguably are breaking trend lines. But they’re all below their 50-day moving averages.

A move by STLD, NUE and CLF above their 50-day lines, however, could offer an early entry.

X stock, meanwhile, is not only below its 50-day line but its 21-day and 200-day lines as well.

Be sure to read IBD’s The Big Picture column each day to stay on top of the prevailing market trend and be sure that growth stock investors still have a green light to buy quality stocks in buy range.

Steel Outlook

Rising supply will be a concern to watch. Steel Dynamics is nearing completion of its Sinton, Texas, flat roll steel mill.

On a longer timeline, Nucor announced in September plans for a $100-million expansion of a bar mill, adding 600,000 tons of capacity. Nucor also said it will build a $2.7-billion sheet mill with a capacity of 3 million tons. Meanwhile, U.S. Steel is looking to build a $3 billion, 3-million-ton mini mill.

However, there are plenty of positives in the demand outlook, including the bipartisan infrastructure bill with about $550 billion in additional spending planned. In Nucor’s July 22, Q2 earnings call, CEO Leon Topalian said the infrastructure bill should boost steel demand “by as much as 5 million tons per year for every $100 billion of new investment.”

Other strengths include lean stocks throughout the supply chain, with automakers needing to rebuild “staggeringly low” inventories, he said.

The lift in oil prices also could boost demand in the oil sector that’s been a drag throughout the pandemic.

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