Story updated at 9:45 a.m. to reflect market activity.
Steel Dynamics fell 2.5% to $17.26 in morning trading.
The bank said the steel producer is leveraged to lower steel pricing.
Analyst Philip Gibbs wrote, "We are downgrading shares of Steel Dynamics, Inc. (STLD-NASDAQ) to HOLD from BUY on valuation [blended EV/EBITDA multiple on our 2014/2015 expectations of 6.8x vs. normalized range of 5-8x] and more cautious near-term expectations as flat rolled spreads decline and Metals Recycling profitability struggles in 1H14."
Separately, TheStreet Ratings team rates STEEL DYNAMICS INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate STEEL DYNAMICS INC (STLD) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, notable return on equity, largely solid financial position with reasonable debt levels by most measures and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- STLD's revenue growth has slightly outpaced the industry average of 3.9%. Since the same quarter one year prior, revenues slightly increased by 9.3%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- STEEL DYNAMICS INC's earnings per share declined by 11.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, STEEL DYNAMICS INC increased its bottom line by earning $0.83 versus $0.73 in the prior year. This year, the market expects an improvement in earnings ($1.27 versus $0.83).
- The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, STEEL DYNAMICS INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
- STLD's debt-to-equity ratio of 0.83 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.14 is sturdy.
- Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. The stock's price rise over the last year has driven it to a level which is somewhat expensive compared to the rest of its industry. We feel, however, that other strengths this company displays justify these higher price levels.
- You can view the full analysis from the report here: STLD Ratings Report