Stock Analysis on Net
Stock Analysis on Net

Steel Dynamics Inc. (NASDAQ:STLD)

This company has been moved to the archive! The financial data has not been updated since October 26, 2022.

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Steel Dynamics Inc., free cash flow to the firm (FCFF) forecast

US$ in thousands, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 15.31%
01 FCFF0 1,316,534
1 FCFF1 1,490,118 = 1,316,534 × (1 + 13.18%) 1,292,243
2 FCFF2 1,668,608 = 1,490,118 × (1 + 11.98%) 1,254,878
3 FCFF3 1,848,342 = 1,668,608 × (1 + 10.77%) 1,205,461
4 FCFF4 2,025,132 = 1,848,342 × (1 + 9.56%) 1,145,375
5 FCFF5 2,194,394 = 2,025,132 × (1 + 8.36%) 1,076,298
5 Terminal value (TV5) 34,191,023 = 2,194,394 × (1 + 8.36%) ÷ (15.31% – 8.36%) 16,769,882
Intrinsic value of Steel Dynamics Inc. capital 22,744,137
Less: Long-term debt, including current maturities (fair value) 3,300,000
Intrinsic value of Steel Dynamics Inc. common stock 19,444,137
 
Intrinsic value of Steel Dynamics Inc. common stock (per share) $110.75
Current share price $98.04

Based on: 10-K (reporting date: 2021-12-31).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Steel Dynamics Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 17,213,021 0.84 17.79%
Long-term debt, including current maturities (fair value) 3,300,000 0.16 2.37% = 3.12% × (1 – 24.04%)

Based on: 10-K (reporting date: 2021-12-31).

1 US$ in thousands

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 175,571,409 × $98.04
= $17,213,020,938.36

   Long-term debt, including current maturities (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (22.90% + 19.10% + 22.60% + 22.50% + 33.10%) ÷ 5
= 24.04%

WACC = 15.31%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Steel Dynamics Inc., PRAT model

Microsoft Excel
Average Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018 Dec 31, 2017
Selected Financial Data (US$ in thousands)
Interest expense, net of capitalized interest 57,209 94,877 127,104 126,620 134,399
Net income attributable to Steel Dynamics, Inc. 3,214,066 550,822 671,103 1,258,379 812,741
 
Effective income tax rate (EITR)1 22.90% 19.10% 22.60% 22.50% 33.10%
 
Interest expense, net of capitalized interest, after tax2 44,108 76,755 98,378 98,131 89,913
Add: Dividends declared 210,939 210,496 209,513 174,355 148,231
Interest expense (after tax) and dividends 255,047 287,251 307,891 272,486 238,144
 
EBIT(1 – EITR)3 3,258,174 627,577 769,481 1,356,510 902,654
 
Current maturities of long-term debt 97,174 86,894 89,356 24,234 28,795
Long-term debt, excluding current maturities 3,008,702 3,015,782 2,644,988 2,352,489 2,353,145
Total Steel Dynamics, Inc. equity 6,304,641 4,345,164 4,075,834 3,935,071 3,351,574
Total capital 9,410,517 7,447,840 6,810,178 6,311,794 5,733,514
Financial Ratios
Retention rate (RR)4 0.92 0.54 0.60 0.80 0.74
Return on invested capital (ROIC)5 34.62% 8.43% 11.30% 21.49% 15.74%
Averages
RR 0.72
ROIC 18.32%
 
FCFF growth rate (g)6 13.18%

Based on: 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31), 10-K (reporting date: 2017-12-31).

1 See details »

2021 Calculations

2 Interest expense, net of capitalized interest, after tax = Interest expense, net of capitalized interest × (1 – EITR)
= 57,209 × (1 – 22.90%)
= 44,108

3 EBIT(1 – EITR) = Net income attributable to Steel Dynamics, Inc. + Interest expense, net of capitalized interest, after tax
= 3,214,066 + 44,108
= 3,258,174

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [3,258,174 – 255,047] ÷ 3,258,174
= 0.92

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 3,258,174 ÷ 9,410,517
= 34.62%

6 g = RR × ROIC
= 0.72 × 18.32%
= 13.18%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (20,513,021 × 15.31% – 1,316,534) ÷ (20,513,021 + 1,316,534)
= 8.36%

where:

Total capital, fair value0 = current fair value of Steel Dynamics Inc. debt and equity (US$ in thousands)
FCFF0 = the last year Steel Dynamics Inc. free cash flow to the firm (US$ in thousands)
WACC = weighted average cost of Steel Dynamics Inc. capital

FCFF growth rate (g) forecast

Steel Dynamics Inc., H-model

Microsoft Excel
Year Value gt
1 g1 13.18%
2 g2 11.98%
3 g3 10.77%
4 g4 9.56%
5 and thereafter g5 8.36%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 13.18% + (8.36% – 13.18%) × (2 – 1) ÷ (5 – 1)
= 11.98%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 13.18% + (8.36% – 13.18%) × (3 – 1) ÷ (5 – 1)
= 10.77%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 13.18% + (8.36% – 13.18%) × (4 – 1) ÷ (5 – 1)
= 9.56%