Nucor Corporation has fallen in recent months, but not as much as the steel industry's wider 34% decline.
NUE is currently trading at a roughly 39% discount to its 52-week high of $203 reached on April 9.
Lower steel prices coupled with declining earnings estimates cast a pall on the company's prospects.
Nucor Corporation’s NUE shares have lost 20.2% in the past three months compared with the Zacks Steel Producers industry’s decline of 34.4%. The downward spiral reflects the choppiness in the steel space underpinned by the significant pullback in U.S. steel prices, which has led to a downward revision in NUE’s earnings estimates.
NUE is currently trading at a roughly 39% discount to its 52-week high of $203 reached on April 9, 2024.
Technical indicators show that NUE has been trading below the 50-day simple moving average (SMA) since Dec. 4, 2024. The stock is also trading below the 200-day SMA since Nov. 7, 2024. Following a death crossover on June 20, 2024, the 50-day SMA is reading lower than the 200-day SMA, indicating a bearish trend.
NUE Stock Trades Below 50-Day SMA
Zacks Investment Research
Image Source: Zacks Investment Research
Given the pullback in Nucor’s shares, investors might be tempted to snap up the stock. But is this the right time to buy NUE? Let’s take a look.
Expansion Actions & Acquisitions to Aid Nucor Stock
Nucor remains committed to boosting production capacity, which should drive profitable growth and strengthen its position as a low-cost producer. The company has already commissioned some of its growth projects with Gallatin and Brandenburg mills showing strong production and shipment performance. NUE is investing $6.5 billion in eight major growth projects through 2027. These include the Apple Grove, WV, sheet mill (the largest project), the Lexington, NC, rebar micro mill and the Pacific Northwest rebar micro mill.
The company has been focusing on growth through strategic acquisitions over the past several years. The recent acquisition of Southwest Data Products expanded its growing portfolio of solutions for data center customers. The buyout of Rytec Corporation will also allow Nucor to further expand beyond core steelmaking businesses into related downstream businesses. Adding high-performance doors is expected to create cross-selling opportunities with other Nucor businesses and significantly expand its product portfolio serving the commercial space.
Strong Financial Health Supports NUE’s Capital Allocation
Nucor is maximizing returns to shareholders by leveraging its strong balance sheet and cash flows. It ended third-quarter 2024 with strong liquidity, including cash and cash equivalents and short-term investments of around $4.9 billion. NUE returned around $2.3 billion through dividends and share repurchases in the first nine months of 2024. It has returned around $12 billion to shareholders through dividends and share repurchases since 2020. The company, in December 2024, raised its quarterly dividend to 55 cents per share from 54 cents. Nucor has increased its regular dividend for 52 straight years since it started paying dividends in 1973. It remains committed to return at least 40% of annual net earnings to shareholders.
NUE offers a dividend yield of 1.8% at the current stock price. Its payout ratio is 20% (a ratio below 60% is a good indicator that the dividend will be sustainable) with a five-year annualized dividend growth rate of 8.2%. Backed by strong financial health, the company's dividend is perceived to be safe and reliable.
Lower Steel Prices Weigh on NUE’s Prospects
Nucor is buffeted by the significant downward correction in steel prices, which has largely contributed to the downward slide in the stock. U.S. steel prices declined sharply in 2024 due to a slowdown in end-market demand and oversupply after a strong run in late 2023 that extended into early 2024.
The benchmark hot-rolled coil (HRC) prices tumbled more than 40% last year from $1,200 per short ton at the start of 2024. The downside has been influenced by a concoction of factors, including a pullback in steel mill lead times, an oversupply of steel exacerbated by increased imports, reduced demand from key industries and economic uncertainties.
Sluggish industrial production and construction activities also contributed to the decline. The price slump led to lower profitability for steel producers. While the recent steel mill price hikes have led to a modest uptick in HRC prices, a significant recovery is not expected over the near term, given the weak manufacturing backdrop and demand weakness. Prices are currently hovering around the $700 per short ton level.
A slowdown in global automotive production curtailed steel consumption in this key end-market in 2024. The construction sector experienced a slowdown in the United States due to high interest rates, which dampened steel demand in this market. Elevated borrowing costs and inflation took a bite out of the residential construction industry. Manufacturing activities also weakened amid softening demand for goods and higher borrowing costs.
Lower steel selling prices are expected to hurt Nucor’s performance in the fourth quarter of 2024. NUE expects a decline in earnings, hurt by the steel mills segment's lower earnings due to lower volumes and average selling prices. The company also expects profitability in the steel products segment to fall in the fourth quarter from the third quarter of 2024, owing to reduced volumes and average selling prices.
The Zacks Consensus Estimate for 2024 for NUE has been revised downward over the past 60 days. The consensus estimate for the fourth quarter of 2024 has also been revised lower over the same time frame.
The Zacks Consensus Estimate for 2024 earnings is currently pegged at $8.19, suggesting a year-over-year decline of roughly 54.5%. Earnings are also expected to register a decline of roughly 80.1% in the fourth quarter.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Zacks Investment Research
Image Source: Zacks Investment Research
Nucor’s Valuation Looks Stretched
Despite the downside in its share price, Nucor is currently trading at a forward 12-month earnings multiple of 14.63X, a roughly 60% premium to the peer group average of 9.17X, and higher than its five-year median. The market appears to have priced its shares higher despite the bleak earnings trajectory.
Zacks Investment Research
Image Source: Zacks Investment Research
NUE Stock Underperforms Industry and S&P 500
NUE’s shares have tumbled 27.9% over the past year, underperforming the industry’s 24.7% decline and the S&P 500’s rise of 23.7%. Its major U.S. steel-making peers, Steel Dynamics, Inc. STLD has gained 12.1%, while United States Steel Corporation X and Cleveland-Cliffs Inc. CLF have lost 22.7% and 43.4%, respectively, over the same period.
Nucor’s One-year Price Performance
Zacks Investment Research
Image Source: Zacks Investment Research
How Should Investors Play the NUE Stock?
Nucor benefits from its actions to expand its production capabilities and grow its business through strategic acquisitions. Its efforts to boost production capacity through several growth projects should drive profitability. Despite these positives, NUE remains exposed to the underlying challenges in the steel industry that have led to its underperformance. Lower steel prices coupled with declining earnings estimates, cast a pall on the company's prospects. Its stretched valuation also might not offer an attractive entry point at this time. Holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors who already own it.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
