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Don't Recycle Schnitzer Steel Yet - Barron's

by: SA Editor Rachael Granby September 07, 2008 | about stocks: SCHN    
Rachael Granby

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Rachael Granby

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A fall in scrap metal prices has scared investors away from Schnitzer Steel Industries (SCHN), pushing the metal-recycler's share price down by more than 50%, to $58.30 as of Friday's close. Concerns about slowing growth in emerging markets have not helped either. But Barron's Christopher Williams says Schnitzer is far from junk and is a good long-term bet on a price recovery in scrap metals, even with scrap prices unlikely to retake earlier highs anytime soon.

Schnitzer is expected to post earnings of $200M ($6.85/share) for the fiscal year that just ended, with revenue of $3.5B. Many expect the global economy to begin to level out next year, which could help Schnitzer's shares rise to the mid-to-high $70s. Schnitzer is less vulnerable to the earnings volatility typically associated with traditional steel producers, and its access to deepwater ports lets it export scrap more cheaply than most of its rivals.

The industry is under pressure to continue consolidating, making Schnitzer a potential takeover target. Bob Richard, of Longbow Research, thinks a takeover bid could be as high as $150/share, and that the buyer could be a foreign company from Asia or Russia.

Brian Culpepper, of James Small Cap Fund, says "the company has good overall fundamentals, and the stock is oversold," and has added Schnitzer to the fund's Buy list.

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This article has 3 comments:

  •  
    Sep 08 06:09 PM
    Schnitzer is definitely a takeover target as China has no access to scrap and much need for it. Be sure that once the markets pick up again the price will skyrocket, it's a one of a kind company with one of a kind management, who will not settle for just any deal. Their car parts yards are also doing well.
    Reply
  •  
    Oct 28 02:10 AM
    Checkout Craigslist stories, Schnitzers let go many hundreds of people,having major cash flow problems and financing problems, insiders know this as they have been selling stock see SEC fillings, this call comming covers when scrap prices were at their peak before the slowdown in China and the rest of the world...and down their stock has gone
    Reply
  •  
    Nov 10 06:04 PM

    Excellent comment, I'm looking at their cash flow statement and it looks bad, at $27.69 (as of 11/10/08) the stock looks fairly prices but the future of steel does not look well. Thanks for pointing this out.

    On Oct 28 02:10 AM Ponylover wrote:

    > Checkout Craigslist stories, Schnitzers let go many hundreds of people,having
    > major cash flow problems and financing problems, insiders know this
    > as they have been selling stock see SEC fillings, this call comming
    > covers when scrap prices were at their peak before the slowdown in
    > China and the rest of the world...and down their stock has gone
    Reply
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