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Stelco (STLC) stock forecast: Where next for the Canadian steel company?

By Rob Griffin

Edited by Jekaterina Drozdovica

09:29, 25 March 2022

Hamilton, Ontario, Canada - May 20, 2018: Sign of Stelco at Hamilton plant, Founded in 1910, Stelco Holdings Inc. is a steel company based in Hamilton, Ontario, Canada.
Stelco (STLC) stock forecast: Where next for the Canadian steel company? – Photo: Shutterstock

It’s been a great time for investors in Stelco Holdings (STLC), the Canadian steelmaker. Revenue has increased sharply and the stock price has almost doubled over the past year.

The company, whose products are used in the construction, automotive and energy industries, has reported record earnings, net income and margins for 2021. It has also made strategic investments over the past four years, as well as having returned almost CAD$1bn ($797.2m) to shareholders since its flotation in 2017.

But what is next for Stelco, whose hot-rolled, cold-rolled and coated-sheet steel products are sold to businesses across Canada and the US?

In this article we reflect on the firm’s recent results and what factors could shape the Stelco stock forecast in the coming years. 

Stelco stock-price history

Investors have every right to be enthusiastic about Stelco’s recent stock movements. The price has rocketed due to revenue increases on the back of higher steel prices.

The Stelco share price was at CAD$52.82 as the market closed on 23 March 2022. This is 111% higher than it was a year ago. It’s also up 32.5% since the start of this year.

The price has recovered remarkably well over the past two years. Back in the middle of March 2020, Stelco shares had slumped to CAD$4.68 as Covid-19 spread around the world. 

Stelco has also achieved trailing returns of 51.11% over the past three years, according to Morningstar data to 23 March 2022. This compares to 27.30% by the industry. 

Stelco stock chart, 2017–2022

Stelco’s proposition

Stelco’s origins can be traced back to the early 1900s, when The Steel Company of Canada, as it was then called, was formed from the merger of various businesses.

Today the company claims to have “one of the newest and most technologically advanced integrated steelmaking facilities” in North America. It provides high-performance steels for global automakers, hot-rolled coils to line-pipe markets, and products used in residential and industrial construction projects. 

Latest quarterly results

In late February 2022, Stelco announced revenue of CAD$1.19bn for the fourth quarter, up 180% on the same period in 2020. However, it was down 12% from its third-quarter 2021 earnings. 

The company also reported operating income of CAD$653m for the fourth quarter, representing a 55% margin, with adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA) of CAD$673m.

The adjusted net income came in at CAD$525m, while the adjusted net income per share was CAD$6.79, down 17% from the third quarter of 2021. The CAD$762m increase in fourth-quarter revenues was primarily due to a 153% rise in the average selling price per net tonne and a 28% increase in shipping volumes.

The average selling price per net tonne of steel products increased from $728 per net tonne in the fourth quarter of 2020 to $1,845 per net tonne in the fourth quarter of 2021. 

Full-year 2020 financial review 

Stelco also reported that revenue for 2021 increased to CAD$2.6bn, or by 172%, to CAD$4.1bn in 2021 from CAD$1.5bn in 2020. The company primarily attributed this increase to a 109% higher average selling price per net tonne, a 33% increase in shipping volumes and CAD$68 higher non-steel sales. 

Meanwhile, operating income for the year increased from an operating loss of CAD$7m in 2020 to a positive CAD$1.9bn in 2021. This consisted of an increase in revenue of CAD$2.6bn, partly offset by higher cost of goods sold of CAD$606m and higher selling, general and administrative expenses of CAD$10m during 2021.

Most successful year on record

Alan Kestenbaum, Stelco’s executive chairman and chief executive, declared it the “most successful year on record”, and insisted he couldn’t be prouder of the team.

“Over the past four and a half years, we have invested strategically and remained tactically flexible in order to take full advantage of our industry-leading low-cost position and capitalise on favourable market conditions,” he said.

“As a result, we have returned almost $1bn to our shareholders since our IPO [initial public offering] in 2017 and are reporting record EBITDA, net income and margins for the 2021 year.”

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However, Kestenbaum did sound a note of caution with pressure on margins expected, due to lower pricing, inflationary pressures “on some of our cost inputs” and a reduction in demand.

“As such, we will work even harder to further improve our cost structure where we can as we complete the final stages of our Lake Erie coke battery rehabilitation and upgrade, and bring our 65MW [megawatt] electricity cogeneration project online,” he said. 

He added: “Our goal is to ensure that Stelco remains profitable through every point of the market cycle.”

Building its local reputation

In the latest Stelco news, the company announced it had executed agreements for the purchase of a 40% equity interest in Hamilton Sports Group. 

The business operates the Hamilton Tiger-Cats, a professional Canadian football team based in Ontario, as well as professional soccer club Forge FC in addition to the master lease of Tim Hortons Field, a modern 23,000-seat multipurpose stadium located centrally in Hamilton. 

In a statement, Kestenbaum said he was thrilled with the partnership. “They put a tremendous product on the field in both sports, and represent Hamilton proudly – much like Stelco,” he added.

Stelco (STLC) stock forecast: 2022–2023

The question on investors’ lips remains: Is Stelco stock a ‘buy’, a ‘sell’ or a ‘hold’? According to the consensus view of nine Wall Street analysts, the stock had a ‘buy’ rating at the time of writing (24 March), as shown by the data compiled by MarketBeat. Seven of those analysts rated Stelco as a  ‘buy’ with the remaining two having it down as a ‘hold’.

The average Stelco stock-price target suggested the stock could rise by 3% to CAD$54.45 over the next 12 months, although views varied. The most optimistic analysts have pencilled in a 46.62% increase to CAD$68.50, while others suggested the stock could actually fall by 15.76% to $44 over this timeframe.

Algorithm-based forecasting service WalletInvestor suggested that Stelco is a “very good long-term investment” as of 24 March. The site gave an optimistic STLC stock-price prediction, expecting the stock to rise 36% from the current CAD$56.60 level to CAD$71.97 over the coming year to March 2023. 

The five-year Stelco stock forecast put it at CAD$154.06 by March 2027. This would represent a 192% premium over the current level.

Note that price predictions can be wrong. Forecasts shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before investing, and never invest or trade money you cannot afford to lose.

What do the analysts say?

Is Stelco steel stock worth considering at this point?

Danni Hewson, financial analyst at AJ Bell, believes it’s been a remarkable time to be involved in the global steel industry as demand recovered from the various coronavirus lockdowns.

“Stelco was already in a prime position before sanctions were imposed on Russian steel.”
by Danni Hewson, AJ Bell

“Stelco was already in a prime position before sanctions were imposed on Russian steel,” she told Capital.com. 

“The post-Сovid global startup, coupled with big government infrastructure commitments – not least from the US – had sent steel prices soaring.”

This resulted in the Canadian steelmaker enjoying a record 2021, she pointed out, and the stock has felt the benefit of everything that’s happened since.

“Now things have shifted once again, Stelco’s outlook has already caught the eye of many investors and its share price has hit a record high,” she added. 

“As a business, it’s invested strategically and was well set up to take advantage of last year’s surging prices and soaring demand, but price pressures are expected to bite in 2022 and profit margins [will be] narrowed.”

FAQs

Is Stelco (STLC) stock a good buy?

Whether STLC is a suitable investment depends on your own investment objectives and the opinion you form based on your own research. Remember, it’s important to reach your own conclusion of the company’s prospects and likelihood of achieving analysts’ targets.

Will the STLC stock price go up or down?

The consensus view of Wall Street analysts at the time of writing was that the stock could rise by 3% to CAD$55.85 over the coming year. However, some analysts warn the price could slip by 15% to CAD$45. Its performance will depend on a variety of factors and analysts may be wrong in their predictions.

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