BlueScope Steel Limited (ASX:BSL) shares storm 4% higher on guidance upgrade

In morning trade the BlueScope Steel Limited (ASX: BSL) share price has raced to a multi-year high following the release of a trading update.

At the time of writing the steel producer’s shares are up 4% to $18.79.

This means that its shares have now surged over 19% higher since this time last year.

What was in the update?

BlueScope has experienced a better than expected second half in North America, leading to an upgrade to its second half earnings guidance.

According to the update, BlueScope expects underlying earnings before interest and tax (EBIT) for the six months to June 30 to be approximately $680 million. This compares to its prior guidance of $606 million that was given in February.

It will mean that full year underlying EBIT comes in at just under $1,200 billion, up from $1,105 million in FY 2017.

Although the market was largely expecting a lift to its guidance, this upgrade was well above expectations.

Management has pointed to strong steel spreads in North America as being the driver on its stronger than expected performance. The company’s North Star mini-mill in Ohio has been a key performer, benefiting greatly from higher realised steel spreads.

Complementing this strong performance was its Australian steep products business which has been performing ahead of expectations thanks to higher margins on export coke sales.

Should you invest?

Based on this earnings guidance I estimate that BlueScope’s shares are changing hands at approximately 14x forward earnings.

I don’t think that this is too demanding and could make BlueScope worth a closer look.

However, I still see more value in materials sector peers such as BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO) and would suggest investors consider them ahead of the high flying steel producer at this stage.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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