Steel Dynamics

Methodology

Steel Dynamics' mini-mill steel operations are highly cyclical with construction demand and steel pricing, requiring normalization to mid-cycle profitability. The vertically integrated model with scrap recycling provides some advantages. Use average earnings across steel cycles rather than peak or trough figures to avoid being misled by temporary pricing conditions.

Methodology

PEG analysis is challenging for Steel Dynamics given extreme earnings volatility from steel price cycles. During construction booms, low PEG ratios are dangerously misleading as pricing normalizes. Focus on return on capital through the cycle and cost positioning rather than earnings growth for this steel producer.

Methodology

Steel Dynamics offers dividends with a variable component adjusting to profitability, plus aggressive buybacks during strong periods. The flexible capital return policy maximizes shareholder value through cycles. PEGY looks compelling at peaks but overstates sustainable returns given steel price volatility.