Steel Dynamics, Inc. (STLD): Is This Company as Solid as Steel?

Peer comparison

Steel Dynamics, Inc. (NASDAQ:STLD)’ peers include Nucor Corporation (NYSE:NUE) and Insteel Industries Inc (NASDAQ:IIIN).

Nucor registered a 3% increase in quarterly sales to $4.7 billion in the second quarter of 2013, while net income remained flat year-on-year at $85.1 million. Nucor entered into a natural gas agreement in November 2012 to secure a long-term supply of natural gas for its steel mills and direct-reduced iron plants that is estimated to last for more than two decades. Going forward, Nucor should realize energy-related cost savings with this low cost natural gas supply.However, Nucor Corporation (NYSE:NUE)’s current margins are still inferior to that of Steel Dynamics. Despite that, Nucor trades at a premium to Steel Dynamics, Inc. (NASDAQ:STLD) with a forward P/E of 13.9, suggesting that it is overvalued.

Insteel Industries Inc (NASDAQ:IIIN) is the country’s largest manufacturer of steel wire reinforcing products for concrete construction applications. It benefits from anti-dumping provisions protecting the interests of domestic producers of prestressed concrete strand and Federal Highway Administration’s Buy America provisions favoring the use of domestic produced prestressed concrete strand for public construction.

In the third quarter of fiscal 2013, Insteel Industries Inc (NASDAQ:IIIN) grew its revenue 4% to $96.9 million, with capacity utilization increased to 48%, compared with 46% a quarter ago. M&A is a key driver of growth for Insteel; it recently acquired all of Tatano Wire and Steel’s concrete pipe and box culvert reinforcement production equipment in April to strengthen its presence in the area of welded wire reinforcement. With a meager 0.7% forward dividend yield, Insteel has less appeal than Steel Dynamics

Conclusion

I like Steel Dynamics for its low cost structure and strengthening balance sheet. In addition, it is currently attractively valued at 10.6 times forward P/E and 0.68 times PEG. With a forward 2.8% dividend yield as the icing on the cake, Steel Dynamics is a buy in my books.

The article Is This Company as Solid as Steel? originally appeared on Fool.com and is written by Mark Lin.

Mark Lin has no position in any stocks mentioned. The Motley Fool recommends Nucor. Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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