Why Stelco Stock Jumped 14% on Thursday

Stelco (TSX:STLC) stock jumped after management began its “substantial” share-repurchase program.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published January 27, 2022 12:15 pm EST

| More on: STLC

Stelco Holdings (TSX:STLC) saw shares jump as high as 14% in early trading on Thursday. It came after Stelco stock announced the results of its issuer bid.

What happened?

Stelco stock announced its “substantial” issuer bid, resulting in an offer to purchase up to $250 million in value of outstanding common shares. The company expects to pay $37 per share for 4.44 million shares, as of Jan. 26, 2022. This takes up 5.7% of total issued and outstanding shares, resulting in a price of about $164 million.

The deal originally came about on Dec. 21, 2021. Under those details, Stelco stock planned to have an offer of 10.4% of total shares if the purchase was $31 per share. Or, at $37 per share, it would take up 8.7% of shares. However, at $37, it now states that it holds 5.7% of shares.

So what?

It’s important to note this major jump in Stelco stock isn’t due to news that’s making investors buy up the stock. It’s the company buying it themselves. Granted, that’s definitely a good thing. And, in fact, analysts continue to weigh on the stock, marking it as incredibly undervalued.

As of writing, shares trade right at that $37-per-share mark. But analysts give Stelco stock a consensus target price of about $55 per share. That’s a potential upside of 49% as of writing. And that’s even with the company announcing last month that the fourth-quarter steel shipments will be below prior guidance, thanks to production challenges and the Omicron variant.

Now what?

We still don’t have the fourth quarter in for Stelco stock, and last quarter was a banger. The company reached record revenue and earnings, and raised its dividend by 50%. The company reported revenue of $1.35 million, up 47% quarter over quarter. Further, it brought in $770 million in operating income, and adjusted EBITDA of $787 million. The dividend is now up $0.30 per share to $0.70 per share per year.

The steel company may be going through a rough patch, but, overall, steel is needed as the world gets back to work. Stelco stock will continue to benefit from a backlog in projects across North America. As one analyst stated, you need to think big picture. Right now is a temporary and “relatively mild” setback. And it looks like management agrees. Now could be the turning point that sees the company and other investors buy up Stelco stock during this market volatility. And that volatility won’t last forever.