Now that we're smack in the middle of earnings season, I wanted to take a closer look at the upcoming earnings for one particular company in the steel sector and share my thoughts on what needs to happen in order for Steel Dynamics (NASDAQ:STLD) to meet and/or surpass analysts' expectations.
Recent Trend Behavior
On Thursday, shares of STLD, which currently possess a market cap of $4.14 billion, a forward P/E ratio of 10.94, and a dividend yield of 2.48% ($0.46), settled at a price of $18.35/share. Based on a closing price of $18.35/share, shares of STLD are trading 1.94% above their 20-day simple moving average, 3.46% above their 50-day simple moving average, and 3.44% above their 200-day simple moving average.
These numbers indicate a short-term and mid-to-long term uptrend for the stock, which generally translates into a buying mode for most near-term traders and many long-term investors. If the company can demonstrate a stronger-than-expected earnings performance when it announces Q2 results on July 21, there's a very good chance the company's trend behavior will continue to move in a very positive direction.
Upcoming Earnings Outlook
When it comes to the company's upcoming Q2 earnings, there are a number of things potential investors should consider. For example, analysts are currently calling for STLD to earn $0.32/share in terms of EPS (which is $0.02/share higher than what the company had reported during Q1 2014, and $0.05/share better than what the company had reported during the year-ago period) and $1.99 billion in terms of revenue when its latest earnings are released on July 21.
In order to meet and/or exceed its quarterly EPS estimates, there are a number of areas in which I'd like to see a solid improvement versus Q1 2014.
With that said, I'd like to see a 2%-to-4% increase in the company's Q2 operating income from the company's steel operations (as compared to Q1's operating income from steel operations of $108 million), a 2.5%-to-3% increase in the company's Q2 gross profit (as compared to Q1's gross profit of $163.3 million), and lastly, a 2.5%-to-3% increase in the company's net income (as compared to Q1's net income of $33.6 million).
Steel Operations Will Drive Q2 Earnings Higher
When Steel Dynamics released its guidance for the upcoming quarter, it was actually a breath of fresh air considering the fact the company missed analysts' expectations during the first quarter. The company recently noted that its results will be driven by its steel operations and if such operations can demonstrate solid growth on a quarter-over-quarter basis the company could very well meet and/or exceed earnings estimates.
For those of you who may be considering a position in Steel Dynamics, I'd actually look to keep a closer eye on the company's steel operations over the next 6-12 months as any uptrend in both shipments and metal spreads could positively impact the company's long-term earnings growth. In terms of the company's upcoming quarter, steady increases of at least 2% in terms of the company's Q2 operating income from steel operations as well as steady increases of at least 2.5% in terms of both gross profit and net income could help HAL stay on course to meet or even surpass analysts' expectations when it announces earnings on July 21.
Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.