Steel is a critical material used in various end-use industries, including energy, construction, automotive and transportation, infrastructure, packaging, and machinery. As the global economy continues to grow, steel demand is expected to rise, making steel stocks a strong investment for the future.
Considering the favorable industry backdrop, it could be wise to scoop up the shares of top-rated steel stocks Nippon Steel Corporation (NPSCY), Ternium S.A. (TX), and Voestalpine AG (VLPNY) that the investors are chasing.
Before delving into the fundamentals of these stocks, let’s look at the factors shaping up steel sector’s growth.
Firstly, rapid urbanization, increased infrastructure spending, demand from the “greenification” of the energy grid, upside in automotive activity, manufacturing reshoring, and a global reduction in carbon emissions are expected to bolster global and North American steel markets. Philipp Englin, CEO of World Steel Dynamics, believes the market is about to hit a once-in-a-century growth spurt from combining the above trends.
Secondly, being the backbone of the manufacturing industry, steel demand is expected to improve on the backs of easing supply chain disruptions and the revival of manufacturing and construction activities. As global trade increases, manufacturers expand their operations, fueling the demand for steel producers.
As per the U.S. Department of Commerce, U.S. monthly steel imports witnessed a significant increase of 20.2% in June, reaching 2.53 million metric tons. In terms of value, U.S. steel imports for June amounted to $3.23 billion compared to May’s $3.07 billion.
According to the World Steel Association’s April 2023 Short-Range Outlook Report, steel demand is projected to rebound by 2.3% to 1.82 billion metric tons in 2023. Further, it is expected to reach 1.85 billion mt, registering a 1.7% growth in 2024.
Furthermore, the global steel market is projected to reach 2.3 billion metric tons by 2030, growing at a CAGR of 3%. Given the solid footing of the steel industry, let’s discuss the above-mentioned stocks in detail:
Nippon Steel Corporation (NPSCY)
Headquartered in Tokyo, NPSCY is a global diversified company engaged in steelmaking and steel fabrication, engineering and construction, chemicals and materials, and system solutions. It provides various industries with a wide range of steel and metal products, alongside involvement in the construction, energy, and electronic materials sectors.
On August 3, the company and its wholly owned subsidiary Nippon Steel Engineering Co., Ltd. (NSE), concluded a Memorandum of Understanding regarding the transfer of part of the steel plant business of NSE to NPSCY through a company split agreement.
This transaction aims to strengthen the facilities engineering system through the optimal allocation of management resources among Nippon Steel group to promote further the development of innovative process technologies and introduction of equipment, etc. It also supports the company’s carbon neutrality and the manufacture of high-value-added products.
NPSCY’s revenue increased by 14.6% year-over-year to ¥2.19 trillion ($15.34 billion) for the fiscal first quarter that ended June 30, 2023. The company’s operating profit and profit attributable to the owners of the parent amounted to ¥248.70 billion ($1.73 billion) and ¥177.06 billion ($1.23 billion), respectively. Also, its EPS stood at ¥170.47.
In addition, its total current assets of ¥4.76 trillion ($33.16 billion), up 16.9% compared to ¥4.07 trillion ($28.38 billion) as of March 31, 2023.
Analysts expect NPSCY’s revenue for the second quarter (ending August 31, 2023) to increase 14.4% year-over-year to $15.09 billion. Its revenue has grown at CAGRs of 8.5% and 7.5% over the past three and five years, respectively. Moreover, its EBITDA and total assets have increased at 45.3% and 12.3% CAGR over the past three years, respectively.
The stock has gained 56.5% over the past nine months to close the last trading session at $7.82.
NPSCY’s POWR Ratings reflect this robust outlook. It has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NPSCY has an A grade for Stability and B for Growth, Value, and Sentiment. It is ranked #3 out of 34 stocks in the A-rated Steel industry.
Beyond what we stated above, we also have NPSCY’s rating for Momentum and Quality. Get all NPSCY ratings here.
Ternium S.A. (TX)
TX is a steel producer which produces finished and semi-finished steel products and iron ore. It operates through two segments: Steel and Mining. The company serves various companies and small businesses in the construction, automotive, home appliances, packaging, transport, and energy industries.
On July 3, TX, along with its subsidiary Confab Industrial S.A. completed the previously announced acquisition of 68.7 million ordinary shares of Usinas Siderúrgicas de Minas Gerais S.A. (USNZY) from NPSCY, Mitsubishi, and MetalOne, for BRL10 per common share.
Analysts expect this acquisition would allow the company to expand its business and strengthen its position in the steel industry.
On June 20, TX announced that its new steel slab mill will be located at its existing downstream facility in Pesquería, Nuevo León, Mexico. The construction of the new facility is expected to begin in December 2023, with operations anticipated to start during the first half of 2026. Also, the facility will be equipped with the latest technologies to enhance sustainability.
Máximo Vedoya, TX’s CEO, commented, “This decision is a significant milestone for our company as we continue to integrate our downstream manufacturing capabilities to serve all our customers in Mexico while solidifying our position as a leading player in the USMCA region.”
In the second quarter (ended June 29, 2023), TX’s steel shipments increased marginally year-over-year to 2.98 million tons, while its net sales amounted to $3.87 billion. During the same period, the company reported an operating income, adjusted EBITDA, and net income of $732 million, $883 million, and $736 million, respectively.
In addition, its cash inflows from operating activities came in at $48 million compared to a cash outflow of $5 million in the prior-year quarter.
Street expects TX’s EPS to increase 66.7% year-over-year to $1.30 in the third quarter (ending September 2023), while its revenue is expected to amount to $3.91 billion in the same period.
TX’s revenue and EBITDA have increased at CAGRs of 20.3% and 27.7% over the past three years, respectively, while its EPS has improved at a CAGR of 81.9% in the same period.
Over the past nine months, the stock has gained 36.6% to close the last trading session at $40.76.
TX’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system.
It has a B grade for Value, Stability, Sentiment, and Quality. TX is ranked #2 among 34 stocks in the Steel industry. To see the other ratings of TX for Growth and Momentum, click here.
Voestalpine AG (VLPNY)
VLPNY is an Austria-based holding company engaged in producing and distributing steel and related products. It operates through five segments: Steel; High Performance Metals; Metal Engineering; Metal Forming; and Others serving diverse industries globally.
On July 12, VLPNY announced the largest individual project in its road safety business segment to date, supplying 100 kilometers of guard rails to expand and modernize the D4 highway in the Czech Republic and manage the entire project through installation.
On this, Herbert Eibenstenier, CEO of VLPNY, said, “Our innovative product solutions made in Krems play an important role in protecting the lives of road users. As the largest individual project in the history of our road safety business segment, this shows once again that our customers trust our extensive experience in this critical field.”
In the same month, the company raised its dividend by 25% year-over-year to €1.50 per share, marking the second-highest level since 1995. This dividend was paid to its shareholders on July 18, 2023.
VLPNY’s four-year average dividend yield is 3.14%, and its current dividend of $0.34 translates to a 5.6% yield on prevailing prices. Also, its dividend has grown at an impressive CAGR of 95.2% over the past three years.
During the first quarter that ended on June 30, 2023, VLPNY’s metal engineering revenue increased by 9.8% to €1.14 billion ($1.25 billion), while its total revenue amounted to €4.44 billion ($4.88 billion). The company’s profit after tax and EPS came in at €218.20 million ($239.46 million) and €1, respectively, in the same period.
In addition, its cash inflow from operating activities stood at €9.60 million ($10.54 million) versus an outflow of €551.20 million ($604.91 million) in the prior-year quarter. Also, its net financial debt declined 15.2% from the year-ago value to €1.93 billion ($2.12 billion).
For the current quarter ending September 30, 2023, VLPNY’s revenue is expected to be $4.34 billion. Moreover, it surpassed the consensus revenue estimates in three of the trailing four quarters, which is impressive.
Over the past three years, VLPNY’s revenue and EBITDA have grown at 12.7% and 28% CAGRs, respectively. Moreover, its levered FCF has improved at a 98.1% CAGR over the same period.
VLPNY’s shares have gained 39.9% over the year and 30.2% over the past nine months to close the last trading session at $6.03.
It’s no surprise that VLPNY has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It also has an A grade for Value and B for Stability and Quality. Out of 34 stocks in the same A-rated industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have VLPNY’s ratings for Growth, Sentiment, and Momentum. Get all VLPNY’s ratings here.
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NPSCY shares were trading at $7.82 per share on Thursday afternoon, down $0.00 (+0.01%). Year-to-date, NPSCY has gained 31.65%, versus a 17.56% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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