BUSINESS
Schnitzer Steel Industries, Inc. recycles ferrous and nonferrous metal, and manufactures finished steel products worldwide. The company acquires, processes, and recycles salvaged vehicles, rail cars, home appliances, industrial machinery, manufacturing scrap, and construction and demolition scrap. It offers recycled ferrous metal, a feedstock used in the production of finished steel products; and nonferrous products, including mixed metal joint products recovered from the shredding process, such as zorba, zurik, aluminum, copper, stainless steel, nickel, brass, titanium, lead, and high temperature alloys. The company also procures salvaged vehicles and sells serviceable used auto parts from these vehicles through its 51 retail self-service auto parts stores, 54 metals recycling facilities, and an electric arc furnace steel mill.
INVESTMENT RATING
SCHN’s future returns on capital are forecasted to be in line with the cost of capital. Accordingly, the company is expected to be Value Creation neutral.
Schnitzer Steel Industries has a current Value Trend Rating of D (Negative).
This rating combines very contradictory signals from two proprietary PTR measures of a stock’s attractiveness. Schnitzer Steel Industries has a good Appreciation Score of 72 but a very low Power Rating of 1, triggering the Negative Value Trend Rating.
Schnitzer Steel Industries’ stock is selling well below targeted value. The current stock price of $18.73 compares to targeted value 12 months forward of $37.
Schnitzer Steel Industries’ high appreciation potential results in an appreciation score of 72 (only 28% of the universe has greater appreciation potential.)
Schnitzer Steel Industries has a Power Rating of 1. (This very low Power Rating indicates that SCHN only has a better chance of achieving attractive investment performance over the near to intermediate term than 1% of companies in the universe.)
Factors contributing to this very low Power Rating include: SCHN’s earnings estimates have fallen very significantly in recent months; the Scrap & Waste Materials – Wholesale comparison group is in an extremely unfavorable position currently; and recent price action has been unfavorable.
INVESTMENT PROFILE
SCHN’s financial strength is average. Financial strength rating is 52.
Relative to the S&P 500 Composite, Schnitzer Steel Industries Inc has significant Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that SCHN is higher risk. Low financial leverage is a positive for SCHN. Relative weaknesses include: low historical profitability, low financial strength, high stock price volatility, low expected growth, and high earnings variability. SCHN’s valuation is low: high dividend yield, high P/E ratio, and low price/book ratio. SCHN has unusually low market capitalization.
CURRENT SIGNALS
Schnitzer Steel Industries’ current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; and falling leverage.
Schnitzer Steel Industries’ current technical position is very weak. The stock price is in a 3.0 month down move. The stock has declined 28.6% from its prior high. The stock price is below its 200 day moving average which is in a downtrend. Schnitzer Steel Industries’ stock price decline is extreme and the stock appears oversold.
ALERTS
Important negative changes in Schnitzer Steel Industries Inc (NASDAQ: SCHN) investment behavior have recently occurred: negative upside/downside volume developed.
Limited negative changes in Schnitzer Steel Industries Inc (NASDAQ: SCHN) fundamentals have recently occurred. Negative developments: significant quarterly sales deceleration occurred, and the consensus estimate for August, 2025 decreased significantly. Positive development: significant quarterly earnings acceleration occurred.
The stock is currently rated D.
On 3/22/24, Schnitzer Steel Industries Inc (NASDAQ: SCHN) stock declined modestly by -1.2%, closing at $18.73. This decline was accompanied by normal trading volume. Relative to the market the stock has been weak over the last nine months and has declined -2.1% during the last week.
CASH FLOW
In 2023, Schnitzer Steel Industries experienced a very significant reduction in cash of -$37.77 million (-86%). Sources of cash were much lower than uses. Cash generated from 2023 EBITDA totaled +$70.54 million. Non-operating sources contributed +$9.38 million (+13% of EBITDA). Cash taxes consumed -$1.96 million (-3% of EBITDA). Re-investment in the business amounted to -$70.46 million (-100% of EBITDA). On a net basis, debt investors pulled out -$25.15 million (-36% of EBITDA) while equity investors removed -$20.12 million (-29% of EBITDA).
SCHN’s Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Schnitzer Steel Industries Peer Group. (Since 2020 Non-operating Income, %EBITDA has stabilized.) In most years, Schnitzer Steel Industries was in the top quartile and second quartile. Currently, Schnitzer Steel Industries is upper quartile at +13% of EBITDA (+$9.38 million).
SCHN’s Cash Taxes, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by an opposite trend for the Schnitzer Steel Industries Peer Group. (Since 2021 Cash Taxes, %EBITDA has experienced a very sharp recovery.) In most years, Schnitzer Steel Industries was in the top quartile. Currently, Schnitzer Steel Industries is upper quartile at -3% of EBITDA (-$1.96 million).
SCHN’s Business Re-investment, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Schnitzer Steel Industries Peer Group. (Since 2021 Business Re-investment, %EBITDA has decelerated very sharply.) In most years, Schnitzer Steel Industries was in the third quartile and top quartile. Currently, Schnitzer Steel Industries is substantially below median at -100% of EBITDA (-$70.46 million).
SCHN’s Debt Investors, %EBITDA has experienced a very strong overall uptrend over the period. This improvement was accompanied by stability for the Schnitzer Steel Industries Peer Group. In most years, Schnitzer Steel Industries was in the lower quartile and top quartile. Currently, Schnitzer Steel Industries is substantially below median at -36% of EBITDA (-$25.15 million).
SCHN’s Equity Investors, %EBITDA has exhibited a volatile overall uptrend over the period. This improvement was accompanied by an opposite trend for the Schnitzer Steel Industries Peer Group. (Since 2021 Equity Investors, %EBITDA has experienced a very sharp decline.) In most years, Schnitzer Steel Industries was in the top quartile and second quartile. Currently, Schnitzer Steel Industries is above median at -29% of EBITDA (-$20.12 million).
SCHN’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Schnitzer Steel Industries Peer Group. In most years, Schnitzer Steel Industries was in the second quartile and top quartile. Currently, Schnitzer Steel Industries is lower quartile at -54% of EBITDA (-$37.77 million).
SCHN’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Schnitzer Steel Industries Peer Group as well. In most years, Schnitzer Steel Industries was in the lower quartile. Currently, Schnitzer Steel Industries is lower quartile at +0%.
PROFITABILITY
SCHN’s return on equity has eroded very significantly since 2014. The current level is -2.9% versus the high of 0.7% and the low of -35.5%.
This very significant erosion was due to very strong negative trend in pretax operating return and very minor positive trend in non-operating factors.
The productivity of SCHN’s assets declined over the full period 2014-2023: asset turnover has experienced a downtrend.
Reinforcing this trend, pretax margin experienced a strong overall downtrend that accelerated very sharply from the 2021 level.
Non-operating factors (income taxes and financial leverage) had a very small positive influence on return on equity.
SCHN’s return on equity is lower quartile (-2.9%) for the four quarters ended November, 2023.
Operating performance (pretax return on assets) is lower quartile (-1.9%) reflecting asset turnover that is at the upper quartile (1.75X) and lower quartile pretax margin (-1.1%).
Tax “keep” rate (income tax management) is at the upper quartile (79.7%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is slightly below median (1.92X).
GROWTH RATES
There are no significant differences between Schnitzer Steel Industries I’s longer term growth and growth in recent years.
Schnitzer Steel Industries I’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has exceeded equity growth.
Annual revenue growth has been 5.1% per year.
Total asset growth has been 5.8% per year.
Annual E.P.S. growth has been 50.4% per year.
Equity growth has been 4.9% per year.
No consensus growth rate forecast is available for Schnitzer Steel Industries I.
Relative to the Schnitzer Steel Industries Peer Group, Schnitzer Steel Industries’ historical growth measures are generally second quartile. E.P.S. growth (50.4%) has been upper quartile. Revenue growth (5.1%) has been substantially above median. Equity growth (4.9%) has been above median. Total asset growth (5.8%) has been at median.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Schnitzer Steel Industries’ stock price performance has been volatile and significantly below market. Between May, 2013 and March, 2024, Schnitzer Steel Industries’ stock price fell -24%; relative to the market, this was a -76% loss. Significant price moves during the period: 1) March, 2020 – May, 2021: +318%; 2) July, 2019 – March, 2020: -51%; and 3) December, 2013 – September, 2015: -59%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -37.8% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through February, 2024 of -37.8% is lower quartile relative to Schnitzer Steel Industries Inc Peer Group.
Current 5-year total return performance of -1.3% is lower quartile relative to the S&P 500 Composite.
Through February, 2024, with lower quartile current 5-year total return of -1.3% relative to S&P 500 Composite, Schnitzer Steel Industries’ total return performance is lower quartile relative to Schnitzer Steel Industries Inc Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, SCHN’s overall valuation is exceptionally low. Ratio of enterprise value/assets is lower quartile. Price/equity ratio is lower quartile. Ratio of enterprise value/revenue is lower quartile. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
Relative to Schnitzer Steel Industries Peer Group, SCHN’s overall valuation is exceptionally low. Ratio of enterprise value/assets is lower quartile. Ratio of enterprise value/revenue is lower quartile. Price/equity ratio is lower quartile. Price/earnings ratio is unavailable. Ratio of enterprise value/earnings before interest and taxes is unavailable.
Schnitzer Steel Industries has a major value gap compared to the median. For SCHN to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.31X to 0.74X. If SCHN’s ratio of enterprise value/revenue were to rise to 0.74X, its stock price would be higher by $45 to $64.
For SCHN to achieve upper quartile valuation relative to the Schnitzer Steel Industries Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.31X to 1.04X. If SCHN’s ratio of enterprise value/revenue were to rise to 1.04X, its stock price would increase by $78 from the current level of $19.
VALUE TARGETS
SCHN’s future returns on capital are forecasted to be in line with the cost of capital. Accordingly, the company is expected to be Value Creation neutral.
Schnitzer Steel Industries’ current Price Target of $39 represents a +108% change from the current price of $18.73.
This high appreciation potential results in an appreciation score of 72 (only 28% of the universe has greater appreciation potential.)
Notwithstanding this high Appreciation Score of 72, the low Power Rating of 1 results in an Value Trend Rating of D.
Schnitzer Steel Industries’ current Price Target is $39 (-41% from the 2023 Target of $66 but +108% from the 03/22/24 price of $18.73). This dramatic fall in the Target is the result of a +3% increase in the equity base and a -42% decrease in the price/equity multiple. The forecasted decline in return on equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a large negative impact as well. Partially offsetting these Drivers, the forecasted decline in cost of equity has a very large positive impact.
PTR’s return on equity forecast is 4.0% — slightly below our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly below the 2022 peak of 16%.
PTR’s growth forecast is 7.0% — below our recent forecasts. Forecasted growth enjoyed a dramatic, steady increase between 2020 and 2023. The current forecast is steady at the 2020 low of 5%.
PTR’s cost of equity forecast is 3.9% — slightly below recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2015 and 2023. The current forecast is well below the 2022 peak of 10.8%.
At Schnitzer Steel Industries’ current price of $18.73, investors are placing a positive value of $392 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 14.0% per year, and a return on equity of 8.2% versus a cost of equity of 6.5%.
PTR’s 2025 Price Target of $39 is based on these forecasts and reflects an estimated value of existing assets of $34 and a value of future investments of $5.
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