Nucor Corporation (NYSE:NUE) is a prominent company in the steel industry in the US. It is one of the largest steel producers and leading recyclers in North America. NUE outperforms its regional competitors, Cleveland-Cliffs (CLF), United States Steel (X), and Steel Dynamics (STLD), with superior margins and returns, higher dividend yields, and share repurchases. Despite trading at higher EV/Sales and Price/Tangible Book, NUE still has room to catch up to X in terms of performance and is recommended as a buy.
NUE is known for its recycling efforts, with nearly 80% of its steel production coming from recycled content. The company has 70 facilities dedicated to scrap recycling, two facilities for Direct Reduced Iron (DRI), and five industrial gas plants. NUE consumes 25-30 million tons of scrap per year as feedstock for steel production, with different sources such as obsolete scrap, DRI, and prime scrap. NUE’s revenue comes entirely from the US, unlike X and CLF, which export a portion of their production.
NUE is well positioned to benefit from the US infrastructure renewal, green energy implementation, and semiconductors. As the steel demand game is in its early stages, there is significant upside potential for NUE. The ongoing global geopolitical turbulence and the need to focus on local steel producers may further benefit the US heavy industry.
In the 3Q23 results, NUE reported a decline in net earnings and net sales compared to previous quarters. The steel mills segment experienced a significant decline in pretax earnings due to lower sales and realized prices. However, NUE still maintains the best margins and returns compared to X and CLF.
NUE has a strong balance sheet, holding the highest credit ratings among steel producers in North America. It has a manageable amount of total debt and significant cash reserves. Compared to its major US competitors, NUE has a superior balance sheet.
NUE offers attractive dividends and has solid valuation metrics. It trades close to its five-year average figures and provides value for its price. In terms of price action, NUE is on the verge of a breakout above long-term resistance, which could provide a good entry point with favorable risk-reward.
Overall, NUE’s success relies on the US economy, particularly infrastructure renewal, green energy transition, and reshoring trends. As these trends require substantial amounts of steel, NUE is well positioned to benefit significantly. The company’s financial strength and positioning make it a recommended buy.
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