SCHNITZER STEEL

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SCHNITZER STEEL INDUSTRIES, INC. (SCHN)-Nasdaq
Analyst Adam Strittmatter
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Company Overview

• Schnitzer collects, processes, and recycles
  metals and uses them to manufacture steel
  products.
• Uses the West Coast of the United States to carry
  out its recycling and metal processing at various
  facilities
• Located in Portland, Oregon
• Employs 1,495

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Company Overview (cont.)

• Conducts steel operations through its
  subsidiary, Cascade Steel Rolling Mills
• Cascade SRM manufactures new products such as
  wire rod, grape stakes, and fence posts, used
  primarily by steel service centers and steel
  fabricators along with major farm and wood
  suppliers
• SCHN operates metal collection facilities and
  deep water terminals, primarily along the West
  Coast and Eastern Seaboard
• Also sells scrap to producers in China, India,
  Korea, Japan, Taiwan, as well as domestically
  across the U.S.

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History

• Originated in 1906 when Sam Schnitzer, a Russian
  Immigrant, founded a scrap metal business in
  Oregon
• Schnitzers steel business was developed through
  the 1984 acquisition of Cascade Steel Rolling
  Mils (made steady market for metals recycling
  output)
• Became publicly held in November 1993
• Acquired Pick-N-Pull Auto Dismantlers in a joint
  venture

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Major Products and Services(Processed Scrap
Metal)

• Scrap Iron Steel Processing
• Fence Posts
• Merchant Bars
• Steel Reinforcing Bars
• Special Sections

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Key Competitors

• GS Industries, Inc.
• Steel Authority of India, Inc.
• Jindal Vijaynager Steel Ltd.
• AK Steel Holding Corporation
• Nippon Steel Corporation
• Nucor Corporation
• SHV Holdings
• United States Steel Corp.
• Commercial Metals Company
• GPRI

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Key Facts of SCHN

• Market Capitalization 991.31M
• 52 Week Range 22.60-42.53
• Currently (at open 11/9) 32.90
• P/E 11.28
• Yahoo! Finance 1-year target 43.00
• Sales rose by 41 at FYE 2004 (Revenues rose to
  688.2 M)- - - RECORD EARNINGS
• EPS Growth to 3.58 (from 1.43 at FYE 2004)

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SWOT Analysis(STRENGTHS)

• Has produced profitable results EVERY YEAR in the
  past 10 years, despite hard times economically
• Metals Recycling Business improved by 54 in the
  fourth quarter of 04
• Locate in places where transportation is the most
  cost-effective, giving company the ability to
  aggressively pursue and realize the most
  profitable opportunities

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Strengths (cont.)

• Competitive strengths such as possessing
  facilities with cost-effective access to key
  suppliers and transportation routes, including a
  number of deep-water terminals operated directly
  by the company management with the proven
  ability to seize profitable opportunities and
  impressive market share combined with financial
  strength to leverage significant future growth
• Continued demand for products in Asia

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Weaknesses

• Have desire to increase returns in the steel
  manufacturing business
• Performed well in the industry but look to
  achieve higher results
• Volatility of the Steel Industry
• Manage inventory more efficiently (although a
  tough business to do so)
• 43 increase in Gen. and Admin. Costs hurt the
  overall net profit (due to incentive packages
  offered)

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Opportunities

• Scrap metal is a precious commodity and the
  supply is limited (Good positioning for the
  future)
• Lots of potential for acquisition, which has been
  a strategy used in the past (Cascade Steel and
  Pick-N-Pull)
• Three fundamental factors Long-term strategic
  plans that target specific markets and industrial
  activities an exceptionally strong financial
  profile and the people and assets that are
  required for continual growth
• Continued growth of the auto parts business
• Main components are extracted and sent to
  rebuilders and the remains of the car are sold as
  scrap (waste very little of a Junk car)
• Expansion to other cities in North America

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Threats

• Very high costs of having large amounts of
  inventory
• Some divisions of the metals recycling business
  will have varied financial results due to
  different geographic locations
• Hope to increase sales despite the seasonal
  drop-off of sales in the first quarter (which
  ends 11/30)
• Rising costs of oil

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1-Year Performance Chart
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5-Year Performance Chart
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3-Month Performance Chart
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Interesting Fact

• If you invested 10,000 in Schnitzer Steel
  Industries, Inc. 5 years ago, it would be worth

55,152
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Proposal

• BUY
• Current Market Price 33.90
• Intrinsic Value Calculation 42.97
• Yahoo! Finance 1-Year target 43.00
• Purchase 100 Shares (approx.) 3,390
• Found in BASIC MATERIALS
• Like the potential
• Management is stressing to be as efficient as
  possible