Nucor: Strong Rebound in 2021, Momentum Could Continue

Nucor Corp. (NUE) engages in the manufacturing of steel and steel products. It operates through the following segments: Steel Mills, Steel Products, and Raw Materials. The company was founded in 1905 and is headquartered in Charlotte, North Carolina.

Shares of Nucor outperformed the S&P 500 by a large margin in 2021 but have since pulled back with the overall market. I am bullish on NUE stock as the fundamentals are very strong, and the valuation is attractive.

Nucor Corp Business News

Nucor has announced that it plans on building a new state-of-the-art sheet mill in Mason County, West Virginia. “The West Virginia location on the Ohio River provides Nucor with important transportation and logistics advantages and a strengthened ability to serve customers in the Midwest and Northeast, the two largest sheet consuming regions in the U.S. When fully operational, the new mill will employ approximately 800 full-time teammates,” stated the press release.

The company has also made two important announcements about increasing its quarterly dividend by 23% to $0.50 per share and approving the repurchase of up to $4 billion worth of outstanding common stock.

It is notable that Nucor returned ~$3.53 billion to stockholders in the form of buybacks and dividends from the start of 2021 to December 1, 2021.

Furthermore, Nucor stated it expects record quarterly earnings in Q4 2021.

Q3 2021 Earnings: Very Strong Quarter with Surge in EPS and Revenue

NUE stock earnings have made a very strong rebound as of Q4 2020. In Q3 2021, the reported EPS of $7.28 was better than the estimate of $7.16. Nucor has an impressive track record of beating estimates.

Year-over-year net sales in Q3 2021 increased to $10.31 billion versus $4.93 billion, net earnings attributable to Nucor shareholders adjusted for non-controlling interests rose to $2.13 billion versus $193.4 million, and diluted EPS rose to $7.28 versus $0.63 in Q3 2020.

Fundamentals – Risks

NUE stock has a high Piotroski F-Score of 7 out of 9, indicating a very healthy company. For a steel company like Nucor, having an expanding operating margin is a very positive sign.

On a TTM basis, the operating margin has increased to 21.6% from 8.0% in 2020.

Net margin has also expanded on a TTM basis to 15.9% from 3.6% in 2020. I also like the fact that Nucor has been strengthening its balance sheet by reducing its debt. As per the latest quarter, the debt/equity ratio was 0.37, lower than the figure of 0.49 for 2020.

The free cash flow trend is also positive and strong. In the first nine months of 2021, Nucor generated $2.4 billion of free cash flow with growth of 70.6%, 344.4%, and 27.9% for Q1, Q2, and Q3, respectively.

The company has reported its guidance for its fourth-quarter ending December 31, 2021, expecting the following: “fourth-quarter earnings to be in the range of $7.65 to $7.75 per diluted share. Fourth-quarter of 2021 earnings is expected to be the highest quarterly earnings in Nucor history, surpassing the previous record of $7.28 per diluted share that was set in the third quarter of 2021.”

Upcoming earnings are a key catalyst for NUE stock. Any decline during the period of the next EPS announcement, expected to be on January 27, 2022, could be an opportunity for short-term gains through the motto “buy the rumor, sell the fact,” which could play out. In any case, caution is suggested. 

Valuation

NUE stock is attractive based on its P/E ratio of 5.7x compared to the U.S. metals and mining industry average of 8.9x, and its P/B ratio of 2.1x is roughly in line with the U.S. metals and mining industry average.

Wall Street’s Take

Turning to Wall Street, Nucor has a Hold consensus rating based on four Holds and one Sell rating assigned in the past three months. The average Nucor price target of $107.40 represents 14.7% upside potential.

Conclusion

Nucor had a very strong performance in 2021, with improved profitability and strong revenue growth. It has strong fundamentals, and a strong Q4 2021 could be the beginning of strong price action once again.

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