Goldman Sachs Lowers Estimates on Schnitzer Steel (SCHN)

Goldman Sachs is out with a research report this morning, where it reiterated its Neutral rating on shares of Schnitzer Steel Industries SCHN; it has a $60.00 price target on the stock. The GS analysts said, “SCHN reported EPS from continuing operations of $1.43 per diluted share for its 3QFY2010 (ending May 30), above our estimate of $0.99 and the consensus estimate of $0.87. However, we expect lower scrap prices and decline in steel demand to have a significant negative impact in 4Q and are thus lowering our FY 4Q2010 estimates to $0.38 from $1.01. Our full year fiscal 2010 estimate is now $2.67, down from $2.85 earlier. We have made no changes to our FY 2011/2012/normalized estimates. Our P/E, EV/EBITDA, P/B and M&A based 6-month target price remains at $60 and we maintain our Neutral rating on SCHN.” They added, “Earnings for all steel companies are generally volatile, but Schnitzer’s has been exceptionally volatile due to frequent and wild swings in scrap prices. We believe that investors should look at longer-term earnings power of this company and its favorable geographic position and export model, which are more profitable over the cycle.” The GS analysts closed by saying, “Although we maintain our Neutral rating on the stock as we see current weakness in scrap and steel prices to weigh in on the stock in the near-term, we do like the scrap fundamentals as supply is limited and demand should continue to increase as global steel production rises over coming years. Additionally emerging markets would be the main driver of incremental demand which should benefits companies like Schnitzer with coastal locations. We also like its vertically integrated model allowing the company to partially source its raw scrap from its own auto parts division.”