Morningstar | Schnitzer Issues Middling 4Q Guidance But Fiscal 2018 Has Been an Impressive Campaign
We've updated our valuation model for Schnitzer Steel Industries in light of the company's fiscal fourth-quarter guidance. Results were mixed, as significant sequential volume growth across both the ferrous and nonferrous categories was offset by lower sequential average selling prices. However, Schnitzer's steelmaking operations will report solid results in the quarter, with both volumes and average selling prices rising materially.Although we've tempered our full-year profit forecasts, our long-term outlook and $22 per share fair value estimate are unchanged. Our no-moat rating also remains intact. We maintain a negative outlook for Schnitzer Steel Industries, driven by our bearish forecasts for ferrous and nonferrous scrap prices. Over the long run, we remain concerned that prices will deteriorate to levels where scrap flows are negatively impacted. As a result, operating leverage will shift from a tailwind to a modest headwind, yielding margin contraction.
For 2018, we forecast earnings of $4.33 per share and $200 million of adjusted EBITDA on revenue just shy of $2.4 billion. Although this reflects impressive profitability, we believe fiscal 2018 will ultimately represent cyclical peak market conditions. Accordingly, we expect Schnitzer to fall shy of its long-term guidance that fiscal 2020 ferrous volumes will reach 5 million tons. Additionally, we expect the company to fall short of management's guidance to auto and metals recycling segment operating income of $39 per ton in fiscal 2019, even though fiscal 2018 profitability will be safely above this level.
Schnitzer Steel Industries is engaged as a recycler of ferrous and nonferrous scrap metal, including end-of-life vehicles, and a manufacturer of finished steel products. The company has two segments: Auto and Metals Recycling, which acquires and recycles ferrous and nonferrous scrap metal for sale to foreign and domestic metal producers, processors and brokers, and procures salvaged vehicles and sells serviceable used auto parts from these vehicles through a network of self-service auto parts stores; and Cascade Steel and Scrap, which produces a range of finished steel long products using ferrous recycled scrap metal and other raw materials.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.