Reinforced With Cash At Steel Dynamics

Hammered Hard
Steel Dynamics (STLD ) (STLD) has been hammered in the past six months as mounting inventories and falling scrap prices have hit the consolidating industry. The 49.85 stock is down from its May 11 high of 69.95. But a rebound for the No. 4 U.S. steelmaker may be coming. The Fort Wayne (Ind.) company says its free cash flow could top $350 million this year, enough for additional share buybacks. That could also fund $255 million for new plants and upgrades next year, 80% more than in 2005. Timna Tanners of UBS (UBS ) adds in a new report that "recent underperformance and its cash could pique a buyer's interest." Strong third-quarter earnings and another buyback program of 5 million shares will boost EPS. Moreover, the American Iron & Steel Institute reported on Sept. 18 that steel prices reached an 18-month high in July and that steel shipments rose 16% as demand from automakers and builders increased. Both Tanners and Mark Parr of McDonald Investments, a unit of Cleveland's KeyCorp. (KEY ), see the stock reaching 80 in 12 months.

Gene Marcial is on vacation.

Note: Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

By Mara Der Hovanesian

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