individualinvestor.com TAUB TALK: Weirton Steel's Internet Play. No Kidding.
Editor: Steve Taub (2/17/00)
Who would have thunk?
Suddenly Wall Street loves steel stocks.
Like this Article?
Really.
In just the past week or so, at least four brokerages?Salomon Smith Barney, Lehman, Robinson Humphrey and ABN Amro--have upgraded a number of these stocks.
Their reasons: The U.S. economy is still strong, the Asian economies have recovered, prices have strengthened in large part due to the Asian recovery. In fact, prices are up in some product lines by more than 50%.
In January, orders jumped by more than 100% for the fourth straight quarter.
Also, most of the stocks are trading at about half the valuation of the S&P 500.
As a result, analysts are talking up stocks like Nucor (NYSE: NUE - Quotes, News, Boards), USX US Steel (NYSE: U - Quotes, News, Boards), Steel Dynamics (NASDAQ: STLD - Quotes, News, Boards), National Steel (NYSE: NS - Quotes, News, Boards) and Weirton Steel (NYSE: WS - Quotes, News, Boards).
But, clearly the most exciting one of all is Weirton.
Analysts have just lifted their earnings estimates. Solly and Lehman think that in 2000 it will net $0.25 per share, its first yearly profit since 1995. For 2001, Lehman lifted its forecast to $0.75 per share from $0.55.
The reasons: Higher shipments, higher prices, lower costs, better global prospects.
Sounds great, huh?
However, here's the real exciting part: Ready?
Weirton is an Internet play.
I'm not kidding.
You see, it has this site called MetalSite, a B2B e-commerce website for the steel industry. ?They are far ahead of the pack,? insists Lehman's Richard Aldrich. He says claims no other site comes even close to rivaling MetalSite in terms of business and trades.
Basically the biggest producers and service companies are increasingly doing business here.
Many of them are investors in the site, in fact, including Bethlehem Steel (NYSE: BS - Quotes, News, Boards), LTV (NYSE: LTV - Quotes, News, Boards) and Steel Dynamics.
But the most impressive and exciting investor is Internet Capital Group (NASDAQ: ICGE - Quotes, News, Boards), that Internet incubator company that is busily plunking money down on B2B e-commerce companies. It recently invested $180 million for a 35% stake.
?Internet Capital opens doors and leverages the franchise,? explains Aldrich.
It also greatly improves Weirton's balance sheet.
Just look: In the third quarter it had $389 million in debt and $75 million in cash, resulting in net debt of $314 million. By the end of the fourth quarter, it had $248 million in debt and $209 million in cash, for net debt of $39 million. Wow!
That's what I call de-leveraging, folks.
Now, here's the real exciting part. Weirton is said to be planning an IPO of MetalSite sometime this summer or fall.
This will certainly unlock the value of Weirton.
Now, Aldrich concedes that the notion of valuing a company based on revenue is a little odd to him. Although you'd think he'd be used to looking at red ink if he has been following steel stocks.
So, what is MetalSite worth?
Well, first of all on a private market basis it is worth $500 million to $600 million based on Internet Capital's investment.
At a bare minimum, once it goes public figure it would be worth $1.5 billion, insists Aldrich
But, ?If you say it's worth $2-4 billion, that's $9-$18 per Weirton share,? Aldrich adds.
He figures similar companies have much larger valuations.
Chemdex Corp. (NASDAQ: CMDX - Quotes, News, Boards), an e-commerce site for the life sciences industry, has a market cap of more than $4 billion.
Freemarkets Inc. (NASDAQ: FMKT - Quotes, News, Boards), which creates customized business-to-business online auctions for buyers of industrial parts, raw materials and commodities, has a market cap of more than $7 billion.
Now, analysts think the steel business alone is worth $5 per share.
It closed Wednesday at $9.
If the market is still highly valuing B2B stocks, Weirton could be worth more than $20 a pop.
Not bad for a steel stock.
|
