Steel Dynamics, Inc. STLD closed the acquisition of Zimmer, S.A. de C.V. (“Zimmer”) as part of its raw material procurement plan to aid its new Texas flat roll steel mill. Reportedly, the transaction was financed using the available cash. Notably, the Texas flat roll steel mill is set to start operations in mid-2021.
Zimmer, headquartered in Monterrey, Mexico, runs a ferrous and nonferrous scrap metals recycling business. Zimmer’s main operations consist of six scrap processing facilities. The company also runs many third-party scrap processing locations. Notably, these combined facilities presently ship roughly 500,000 gross tons of scrap on an annual basis and have a projected annual processing capability of two million gross tons.
Per Steel Dynamics’ management, Zimmer’s acquisition extends the company’s presence in the region and enhances its raw materials supply strategy, enabling for cost-effective ferrous scrap procurement for its new Texas flat roll steel mill.
Shares of Steel Dynamics have gained 10.3% in the past year against the industry’s 7.8% decline.
On its second-quarter earnings call, Steel Dynamics stated that it is not possible to understand the full scope of the coronavirus impact on global economies and the related impact on domestic steel demand. Given that the states are developing their reopening guidelines and steel-consuming businesses are resuming operations, the company expects steel and metal recycling demand to improve in the second half of 2020.
Further, the construction sector has remained resilient and associated steel demand has been steady. The automotive sector and associated supply chain have restarted production, and the company is witnessing higher steel demand and prime scrap production. Energy and general industrial consumers continue to remain the weaker sectors.
Zacks Rank & Stocks to Consider
The company currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the basic materials space are Harmony Gold Mining Company Limited HMY, Eldorado Gold Corporation EGO andRoyal Gold, Inc. RGLD.
Harmony Gold has a projected earnings growth rate of 264.3% for the current year. The stock has rallied around 111% in a year. It currently has a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Eldorado Gold has a projected earnings growth rate of 2225% for the current year. The company’s shares have gained around 44% in a year. It currently has a Zacks Rank #2.
Royal Gold has an expected earnings growth rate of 62.1% for 2020. The company’s shares have gained 7.4% in the past year.It is presently a Zacks #2 Ranked player.
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