2023-03-15 15:37:47 ET
Steel Dynamics ( NASDAQ: STLD ) dropped 12% amid a downgrade to neutral from buy at Citi, which cited the steelmaker's 63% increase in the past year and earnings risk around Joist & Deck.
"We remain positive on the long-term outlook but the stock has significantly outperformed peers & closed up the historical EV/EBITDA gap with NUE," Citi analyst Alexander Hacking wrote in a note earlier, where the price target on STLD was raised to $130 from $110. "We are also about significant over-earning in the downstream fabrication segment (joist & deck)."
Hacking reiterated Citi's view that this may be the "best steel market in a generation," though the firm is more cautious in the short term.
"Sheet markets appear inflated by temporary re-stocking demand with prices well above import parity; and construction steel demand may face an air-pocket driven by Fed hikes and slowing e-commerce demand," Citi's Hacking added.
The Citi analyst added that U.S. Steel ( X ) looks "undervalued but we do not see a rush to grow and return capital." Citi's top pick is Reliance Steel ( RS ), which offers the best near-term free cash flow.
Citi's Hacking raised the price target on Nucor ( NUE ) to $160 from $145 and the stock remains neutral rated and U.S. Steel's ( X ) price target was increased to $30 from $22, and also remained a neutral.
Earlier Wednesday Steel Dynamics ( STLD ) said it expects to post adjusted earnings in the range of $3.78 to $3.82 per diluted share for the first quarter of 2023, well above Wall Street estimates of $3.07 .
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Steel Dynamics drops amid a downgrade to neutral from Citi on valuation