STLD - Steel Dynamics: The Aluminum Business May Be Tougher Than The Steel One

2024-01-26 00:12:21 ET

Summary

• STLD had announced its plans for an aluminum rolling mill that would enable it to diversify its earnings base. This USD 2.2 billion project is to be funded internally.
• To estimate the value of STLD's aluminum operations, I used the performance of three US-listed companies as the basis.
• I estimated that on a sum-of-parts basis, comprising the value of the steel and aluminum operations, there is still no margin of safety to invest in STLD.

Investment Thesis

STLD had announced its plans to venture into the aluminum sector with its USD 2.2 billion recycled flat roll mill project. The project would be funded internally as STLD had USD 2.3 billion of cash and short-term investments as of Sep 2023.

My valuation of STLD assuming no such aluminum project showed that it is currently fully priced. Any margin of safety must come from getting better returns from the aluminum project compared to keeping the USD 2.3 billion as cash and short-term investments....

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