With projections of rising steel demand, driven by trends such as urbanization, automobile electrification, trade regulations, and infrastructure investments, now might be an opportune time to explore steel stocks. Moreover, the ongoing war in Ukraine and significant investments in carbon steel infrastructures further contribute to the sector’s growth.
Therefore, I think investors could consider buying quality steel stocks Tenaris S.A. (TS), Ternium S.A. (TX), and Worthington Industries, Inc. (WOR), which pay stable dividends. These stocks seem relatively undervalued compared to their peers.
The World Steel Association recently released an update of its Short-Range Outlook, projecting a 2.3% rise in steel demand this year to reach 1.82 billion metric tonnes and 1.7% growth in 2024, reaching 1.85 mt.
While fears around the US recession, rising interest rates, and supply chain disruptions pose a threat to the steel industry’s future trajectory, trends such as urbanization, automobile electrification, new trade regulations, and the Infrastructure Investment and Jobs Act should help the industry expand.
Moreover, the ongoing war in Ukraine has prompted industries to prioritize domestic sourcing, leading to increased demand for US steel.
Furthermore, carbon steel infrastructures have seen an upsurge in investment. The constant need for building materials such as beams, angles, wire rods, and bars that are anticipated to be driven by development projects across the globe is expected to boost the expansion of the market.
Thus, the global carbon steel market is projected to reach $1.30 trillion by 2032, growing at a CAGR of 3.6% from 2023 to 2032.
Let’s discuss the above-mentioned stocks in detail:
Tenaris S.A. (TS)
Based in Luxembourg, TS, and its subsidiaries produce and sell seamless and welded steel tubular products; and provide related services for the oil and gas industry and other industrial applications.
In terms of forward EV/Sales, TS is currently trading at 1.14x, which is 41.2% lower than the 1.93x industry average. Its 4.13 forward EV/EBIT multiple is 51.3% lower than the 8.47 industry average.
The company pays an annual dividend of $0.68, which translates to a yield of 2.28% on the prevailing price level. Its four-year average yield is 2.69%.
TS’ net sales increased 75% year-over-year to $4.14 billion in its fiscal first quarter ended March 31, 2023. Its operating income rose 179% year-over-year to $1.35 billion.
Moreover, the company’s net income improved 124% year-over-year to $1.13 billion, while its EPS increased 124% from its year-ago quarter to $0.96.
Analysts expect TS’ revenue to increase 34.9% year-over-year to $3.78 billion in the fiscal second quarter that ended June 2023. Its EPS is estimated to increase 49.8% year-over-year to $1.61 in the same quarter. It surpassed the consensus revenue estimates in each of the trailing four quarters.
The stock has gained 25% over the past year to close the last trading session at $29.71.
TS’ POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
It has an A grade for Momentum and a B for Growth and Quality. TS is ranked #6 out of 33 stocks in the A-rated Steel industry.
Click here to check additional TS ratings (Sentiment, Value, and Stability).
Ternium S.A. (TX)
Luxembourg-based TX 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, agro, packaging, transport, and energy industries.
In terms of forward non-GAAP P/E, TX is currently trading at 5.59x, which is 59.1% lower than the 13.68x industry average. Its 3.74 forward EV/EBIT multiple is 66.9% lower than the 11.31 industry average.
On July 3, 2023, TX, together with Confab, a subsidiary of its affiliate Tenaris S.A.(TS), completed the previously announced acquisition of 68.7 million ordinary shares of Usinas Siderúrgicas de Minas Gerais S.A. - USIMINAS from Nippon Steel Corporation, Mitsubishi and MetalOne, pro rata to their current participations in the T/T group within Usiminas control group, at a price of BRL10 ($2.07) per ordinary share.
TX will fully consolidate Usiminas’ balance sheet and results of operations in its consolidated financial statements beginning in July 2023.
On June 20, TX announced that its new steel slab mill, which the company previously disclosed in February 2023, will be built at and integrated into the company’s existing downstream facility in Pesquería, Nuevo León, Mexico. The company expects construction to begin in December 2023, with the start of operations anticipated to occur during the first half of 2026.
Máximo Vedoya, Ternium’s CEO, said, “The value chain in Mexico is rapidly addressing and responding to the growth opportunities presented by the nearshoring of manufacturing capacity.”
TX pays an annual dividend of $3.60, which translates to a yield of 8.96% on the prevailing price level. Its four-year average yield is 5.07%.
TX’s steel shipments rose 4% year-over-year to $3.07 million tons in the fiscal first quarter that ended March 31, 2023. Its net sales amounted to $3.62 billion and operating income came in at $357 million. Also, the company reported an adjusted EBITDA of $508 million.
TX’s EPS is expected to rise 100.7% year-over-year to $1.57 in the fiscal third quarter ending September 2023.
Shares of TX have soared 36.9% over the past nine months to close its last trading session at $39.85.
It is no surprise that TX has an overall B rating, equating to a Buy in our POWR Ratings system.
TX also has a B grade for Value, Quality, Momentum, and Stability. In addition, the stock is ranked #5 in the same industry.
To see additional POWR Ratings for Growth and Sentiment for TX, click here.
Worthington Industries, Inc. (WOR)
WOR focuses on value-added steel processing and manufactured metal products in the United States, Europe, Mexico, Canada, and internationally. It operates through three segments: Steel Processing; Pressure Cylinders; and Engineered Cabs.
The stock’s 0.75 forward P/S multiple is 33.4% lower than the 1.13 industry average. In addition, its 0.86 forward EV/Sales multiple is 426% lower than the 1.50 industry average.
On June 28, WOR declared a quarterly dividend of $0.32 per share, an increase of $0.01 per share or 3% from the prior quarter. The dividend is payable on September 29, 2023. Moreover, WOR has paid a quarterly dividend since it became a public company in 1968, and this year marks the 13th consecutive year the company has increased its dividend.
While WOR’s four-year average dividend yield is 2.23%, the company pays an annual dividend of $1.28, translating to a dividend yield of 1.84%. Also, it has grown its dividend payout at a CAGR of 8.9% over the past three years.
WOR’s net sales stood at $1.23 billion in its fiscal fourth quarter (ended May 31, 2023). Its gross margin rose 45.9% from its year-ago quarter to $244.37 million. The company’s net income increased 56.1% year-over-year to $134.16 million, while its EPS grew 62.1% year-over-year to $2.61.
Street expects WOR’s EPS to rise 24.8% year-over-year to $2.01 in the current quarter ending August 2023. Also, the company has an impressive earnings surprise history; it surpassed the consensus revenue estimates in three of the trailing four quarters.
Over the past year, the stock has gained 53.2% to close its last trading session at $67.87.
WOR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to a Buy in our proprietary rating system.
WOR has a B grade for Momentum, Sentiment, and Quality. The stock is ranked #7 in the same industry.
In addition to the grades highlighted above, view WOR ratings for Value, Growth, and Stability here.
What To Do Next?
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TS shares were unchanged in premarket trading Thursday. Year-to-date, TS has declined -13.30%, versus a 16.75% rise in the benchmark S&P 500 index during the same period.
About the Author: Kritika Sarmah
Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.
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