Institutions Put A Bottom In Schnitzer Steel
Insiders, through no fault of their own, put a cap on share prices for Schnitzer Steel (NASDAQ: SCHN) last year. In four transactions, 2 CFO’s and 2 senior VP’s sold some 29,000+ shares worth about 1.0% of the shares outstanding. The amount wasn’t huge but the selling came in tandem with a ten-year high in share prices that brought no shortage of resistance of its own. If there is anything we’ve learned in our time watching the market is that the market has memory. Support and resistance lines, especially key levels like the $60 level for Schnitzer Steel, can be surprisingly strong even decades after they were last reached.
The takeaway here is that Insidertrades.com reveals the insiders still hold more than 6.0% of the company and the institutions are buying. Institutional activity in Schnitzer Steel was robust last year with old holders rotating out and new investment dollars rotating out. The key takeaway here is that net activity is worth roughly $45 million or about 3.3% of the market cap with shares trading near $45. That brings the total institutional ownership up to over 82% and we see this figure growing in 2022.
Schnitzer Steel Misses Guidance, Leaves Market In Doubt
Schnitzer Steel had a fabulous Q1 period in which volume increases and record pricing helped drive record quarterly results. The problem for the market right now is that supply chain disruptions cut into the top and bottom lines causing the company to miss its own guidance and worse. The disruptions are impacting the outlook and resulted in no guidance for the coming quarter. The good news, because we are always looking for good news, is that demand remains high and the lost revenue will be recouped, it’s just a matter of when. Regardless, the company reported $798.12 million which is up 62.2% from last year but missed the consensus estimate by 800 basis points.
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Moving down to the earnings, the news is equally mixed. The company reported a small decline in gross margin offset by a 280 basis point increase in the operating margin that helped drive net income up more than 200% on a YOY basis. The bad news is that, once again, the supply chain issues impacting revenue resulted in weaker than expected earnings and a very cloudy outlook for the rest of the year.
The Schnitzer Steel Dividend Is Safe But Not Growing
Schnitzer Steel pays a nice 1.65% yield with shares trading near $45 and the payout looks safe enough. The company is paying out only 12% of its consensus for earnings that, even when adjusted for the miss, leave ample room on the books for quarterly payments. The only red flag we see is that free cash flow was negative for the quarter but there are mitigating factors in the timing of shipments and receivables as well as an increase in working capital and inventory. That aside, we are expecting the company to continue to perform robustly if perhaps below the previously stated guidance range.
The Technical Outlook: Range-Bound Schnitzer Steel Moves Lower
Schnitzer Steel shares have been range-bound for the past year and look like they will retest support in the low end of that range. Price action is moving lower in the wake of the Q1 report and guidance miss with indicators confirming the move. Our targets for support are near $44 and $40 which should both produce a bounce if not a bottom. A move below $40 would spell trouble for the market but we don’t see that without some change to the fundamental picture.
Experience
Thomas Hughes has been a contributing writer for InsiderTrades.com since 2019.
Areas of Expertise
Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies
Education
Associate of Arts in Culinary Technology
Past Experience
Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights.
