NYSE: NUE
NUCOR CORP
Report created Feb 2, 2012 Page 1 OF 5
Founded in 1940 and based in Charlotte, North Carolina, Nucor Corp. is a manufacturer of steel and steel
products and North America's largest steel recycler. The company's three main operating units are Steel
Mills, Steel Products, and Raw Materials.
Argus Recommendations
Twelve Month Rating SELL HOLD BUY
Analyst's Notes
Five Year Rating SELL HOLD BUY
Analysis by Bill Selesky, February 1, 2012
ARGUS RATING: BUY
Sector Rating
• Solid 4Q11 profit as sales rise 25%
• Nucor recently reported 4Q11 net income of $137.1 million or $0.43 per diluted share, compared to a
net loss of $11.4 million or $0.04 per share in the year-ago quarter. EPS exceeded our estimate of
$0.36 and the consensus estimate of $0.28.
• The better-than-expected performance was primarily driven by higher average selling prices, stronger
volumes, improving margins, and higher utilization rates.
• We are maintaining our above-consensus 2012 EPS estimate of $3.40, reflecting our forecast for 6%
sales growth versus the consensus forecast of 5%.
• In addition, we are initiating a 2013 estimate of $4.13 per share, implying growth of 21% next year.
INVESTMENT THESIS
BUY-rated Nucor Corp. (NYSE: NUE) reported significantly higher revenue in 4Q11,
and swung to an operating profit after a loss last year. The recovery reflects stronger
demand in the automotive, heavy equipment, and energy industries, which has led to
higher sales of NUE's sheet, plate and SBQ (special bar quality) products.
We expect further improvement in steel demand, pricing, and shipments, and look for
continued solid earnings growth at Nucor in the coming quarters. We also expect the
company to benefit from its manufacturing flexibility and diverse range of product
offerings. Our target price remains $57.
RECENT DEVELOPMENTS
Nucor recently reported 4Q11 net income of $137.1 million or $0.43 per diluted share,
compared to a net loss of $11.4 million or $0.04 per share in the year-ago quarter. EPS
exceeded our estimate of $0.36 and the consensus estimate of $0.28.
The better-than-expected performance was primarily driven by higher average selling
prices, stronger volumes, improving margins, and higher utilization rates. The company's
automotive, heavy equipment, energy, and general manufacturing end markets all showed
improved demand.
Fourth-quarter consolidated net revenue of $4.83 billion rose 25% from $3.85 billion
Market Data
Pricing reflects previous trading week's closing price.
200-Day Moving Average
Target Price: $57.00
52 Week High: $47.27
52 Week Low: $29.82
Closed at $41.69 on 4/6
Price
($)
Under Market Over
Weight Weight Weight
Argus assigns a 12-month BUY, HOLD, or SELL rating to each
stock under coverage.
• BUY-rated stocks are expected to outperform the market (the
benchmark S&P 500 Index) on a risk-adjusted basis over the
next year.
• HOLD-rated stocks are expected to perform in line with the
market.
• SELL-rated stocks are expected to underperform the market
on a risk-adjusted basis.
The distribution of ratings across Argus' entire company
universe is: 46% Buy, 49% Hold, 5% Sell.
Key Statistics
Key Statistics pricing data reflects previous trading day's closing
price. Other applicable data are trailing 12-months unless
otherwise specified
Market Overview
Price
Target Price
52 Week Price Range
Shares Outstanding
Dividend
$44.82
$57.00
$29.82 to $47.27
316.70 Million
$1.45
Sector Overview
Sector
Sector Rating
Total % of S&P 500 Market Cap.
Basic Materials
MARKET WEIGHT
3.00%
Financial Strength
Financial Strength Rating
Debt/Capital Ratio
Return on Equity
Net Margin
Payout Ratio
Current Ratio
Revenue
After-Tax Income
MEDIUM
35.7%
10.6%
3.9%
0.45
2.80
$20.02 Billion
$778.19 Million
Valuation
50
Current FY P/E
Prior FY P/E
Price/Sales
Price/Book
Book Value/Share
Market Capitalization
40
30
Rating
BUY
HOLD
SELL
Forecasted Growth
EPS
($)
0.10
0.29
0.07
0.37
-0.02
0.51
0.94
0.57
0.75
0.94
0.89
0.83
1.01
1.08
1.07
0.97
Quarterly
0.44
Annual
2.45
3.40 ( Estimate)
4.13 ( Estimate)
Revenue
3.7
4.2
4.1
3.9
4.8
5.1
5.3
4.8
5.2
Q1
Q2
Q3
2010
Q4
Q1
Q2
Q3
2011
Q4
Q1
15.8
Annual
FY ends
Dec 31
1 Year EPS Growth Forecast
38.78%
5 Year EPS Growth Forecast
5.00%
1 Year Dividend Growth Forecast
5.52%
Risk
($ in Bil.)
Quarterly
13.18
18.29
0.71
1.90
$23.60
$14.19 Billion
20.0
5.4
5.3
5.2
21.1 ( Estimate)
Q2
Q3
2012
Q4
5.6
Q1
5.7
5.7
5.6
22.5 ( Estimate)
Q2
Q3
2013
Beta
Institutional Ownership
1.22
72.65%
Q4
Please see important information about this report on page 5
©2012 Argus Research Company
Argus Analyst Report
NYSE: NUE
NUCOR CORP
Report created Feb 2, 2012 Page 2 OF 5
Analyst's Notes...Continued
in 4Q10. The average sales price per ton rose 18%, while total tons
shipped to outside customers rose 7%.
The average scrap and scrap substitute cost per ton was $441 in
4Q11, up 23% from 4Q10. The average scrap and scrap substitute
cost per ton for the full year was $439, up 25% from 2010.
The full-year utilization rate at NUE steel mills was 74%, up
from 70% in 2010 and 54% in 2009. Fourth-quarter utilization of
71% was down from 74% in 3Q11 but up from 68% in 4Q10.
Total full-year energy costs rose $1 per ton from the prior year,
primarily due to higher unit electricity costs. Fourth-quarter energy
costs were down approximately $5 per ton from 3Q11, due mainly
to lower sequential electricity costs, but were flat with the prior
year.
The company reported 2011 net income of $778.2 million or
$2.45 per diluted share, compared to $134.1 million or $0.42 per
diluted share in 2010.
EARNINGS & GROWTH ANALYSIS
Nucor posted an operating profit in 4Q11 following a loss in
4Q10; however, earnings were still down from 3Q as additional
supply in the domestic sheet market and higher imports of Chinese
sheet steel pressured pricing and margins in this segment. Chinese
imports have moderated in recent weeks, however, setting the stage
for increased orders at Nucor if demand remains strong. During the
call, management also noted signs of modest improvement in the
residential and nonresidential construction markets.
We are maintaining our above-consensus 2012 EPS estimate of
$3.40, reflecting our forecast for 6% sales growth versus the
consensus forecast of 5%. In addition, we are initiating a 2013
estimate of $4.13 per share, implying growth of 21% next year.
Our long-term growth rate forecast is 5%.
FINANCIAL STRENGTH & DIVIDEND
We rate Nucor's financial strength as Medium, the midpoint on
our five-point scale. The company's debt is rated A2/negative by
Moody's and A/stable by Standard & Poor's.
At the end of 4Q11, the company's debt/capitalization ratio was
35.7%, compared to 36.9% at the end of 4Q10. Nucor had cash
and equivalents of $1.20 billion at the end of 4Q11, down from
$1.33 billion at the end of 4Q10. Long-term debt totaled $3.63
billion at the end of the quarter, compared to $4.28 billion at the
end of 4Q10. The company has an undrawn $1.5 billion unsecured
revolving credit facility that will mature in December 2016.
Nucor recently announced an increase in its quarterly dividend
from $0.3625 to $0.365 per share, or $1.46 annually, for a
projected yield of about 3.3%. The first payment at the new rate
will be made on February 10, 2012 to holders of record as of
December 30, 2011. The February payment will mark Nucor's
155th consecutive quarterly cash dividend. Our dividend estimates
are $1.53 for both 2012 and 2013.
RISKS
The steel industry is extremely cyclical and highly competitive.
Growth & Valuation Analysis
GROWTH ANALYSIS
($ in Millions, except per share data)
Revenue
COGS
Gross Profit
SG&A
R&D
Operating Income
Interest Expense
Pretax Income
Income Taxes
Tax Rate (%)
Net Income
Diluted Shares Outstanding
EPS
Dividend
GROWTH RATES (%)
Revenue
Operating Income
Net Income
EPS
Dividend
Sustainable Growth Rate
VALUATION ANALYSIS
Price: High
Price: Low
Price/Sales: High-Low
P/E: High-Low
Price/Cash Flow: High-Low
Financial & Risk Analysis
2007
16,593
13,463
3,130
578
—
2,552
5
2,253
781
35
1,472
298
4.94
1.13
2008
23,663
19,612
4,051
714
—
3,104
90
3,104
959
31
1,831
305
5.98
1.51
2009
11,190
11,036
154
348
—
-332
135
-414
-177
—
-294
315
-0.94
1.41
2010
15,845
15,001
844
391
—
452
153
267
61
23
134
317
0.42
1.44
2011
20,024
18,075
1,949
521
—
1,428
166
1,252
391
31
778
317
2.45
1.45
12.5
-11.2
-16.2
-13.0
182.5
22.8
42.6
21.6
24.4
21.1
33.6
21.0
-52.7
—
—
—
-6.6
1.1
41.6
—
—
—
2.3
-4.5
26.4
215.7
480.3
483.3
0.7
4.3
$69.93
$41.62
1.3 - 0.7
14.2 - 8.4
10.8 - 6.4
$83.56
$25.25
1.1 - 0.3
14.0 - 4.2
10.2 - 3.1
$51.08
$29.84
1.4 - 0.8
—-—
13.6 - 7.9
$50.72
$35.71
1.0 - 0.7
120.8 - 85.0
18.4 - 12.9
$49.24
$29.82
0.8 - 0.5
20.1 - 12.2
15.1 - 9.2
FINANCIAL STRENGTH
Cash ($ in Millions)
Working Capital ($ in Millions)
Current Ratio
LT Debt/Equity Ratio (%)
Total Debt/Equity Ratio (%)
2009
2,017
3,955
4.22
41.7
41.8
2010
1,325
4,357
3.90
60.1
60.3
2011
1,201
4,312
2.80
48.6
57.3
RATIOS (%)
Gross Profit Margin
Operating Margin
Net Margin
Return On Assets
Return On Equity
1.4
-3.0
-2.6
-2.2
-3.8
5.3
2.9
0.8
1.0
1.8
9.7
7.1
3.9
5.5
10.7
RISK ANALYSIS
Cash Cycle (days)
Cash Flow/Cap Ex
Oper. Income/Int. Exp. (ratio)
Payout Ratio
79.3
—
—
—
44.8
—
2.7
405.0
45.8
—
8.0
405.0
The data contained on this page of this report has been
provided by Morningstar, Inc. (© 2012 Morningstar, Inc.
All Rights Reserved). This data (1) is proprietary to
Morningstar and/or its content providers; (2) may not be
copied or distributed; and (3) is not warranted to be
accurate, complete or timely. Neither Morningstar nor its
content providers are responsible for any damages or
losses arising from any use of this information. Past
performance is no guarantee of future results. This data
is set forth herein for historical reference only and is not
necessarily used in Argus’ analysis of the stock set forth
on this page of this report or any other stock or other
security. All earnings figures are in GAAP.
Please see important information about this report on page 5
©2012 Argus Research Company
Argus Analyst Report
NYSE: NUE
NUCOR CORP
Report created Feb 2, 2012 Page 3 OF 5
Analyst's Notes...Continued
It may also be affected by excess global capacity, which has limited
price increases during periods of economic growth and led to price
decreases during periods of economic contraction. In addition, the
industry faces competition in many markets from producers of
aluminum, cement, composites, glass, plastics and wood. Steel
producers also faces risks associated with commodity prices,
interest and exchange rates, asbestos liability, and environmental
issues.
COMPANY DESCRIPTION
Founded in 1940 and based in Charlotte, North Carolina,
Nucor Corp. is a manufacturer of steel and steel products and
North America's largest steel recycler. The company's three main
operating units are Steel Mills, Steel Products, and Raw Materials.
The Steel Mills segment offers hot-rolled steel products,
including angles, rounds, flats, channels, sheet, wide-flange beams,
and cold-rolled steel products. Steel Products provides steel joists
and joist girders, steel deck, fabricated concrete-reinforcing steel,
cold-finished steel, steel fasteners, steel grating, and metal and wire
mesh. The Raw Materials segment produces direct-reduced iron
(DRI); brokers ferrous and nonferrous metals, pig iron, hot
briquetted iron, and DRI; and processes ferrous and nonferrous
scrap products. The company also has international steel trading
operations.
INDUSTRY
Our rating on the Basic Materials sector is Market-Weight. The
sector looks fairly valued, with growth expectations in line with the
market.
The sector accounts for 3.6% of the S&P 500, and includes
industries such as chemicals, paper, metals and mining. Over the
past five years, the weighting has ranged from 3% to 5%. We think
investors should consider allocating 3%-4% of their diversified
portfolios to stocks in this sector. The sector got off to a positive
start in 2011, but underperformed during 2Q, slumped badly
during the sharp market selloff in 3Q, and ended up trailing the
S&P 500 by hundreds of basis points.
Fundamentals for the Basic Materials group are reasonable. The
P/E ratio on projected 2012 EPS is 11.6, below the market
multiple. The sector's debt ratios appear sound, as many in the
group have deleveraged as the credit markets have reopened. Yields
are in line with the market at about 2.2%. Growth expectations are
average. The Street consensus calls for profits to climb 10.2% in
2012.
VALUATION
NUE shares are trading at 13.3-times our 2012 EPS estimate
and at 10.9-times our 2013 forecast, compared to a 12-year
historical P/E range of 25-43. The shares are also trading below the
low end of their historical range for price/book and price/sales, and
appear attractive relative to peers.
Although the U.S. steel industry faces ongoing challenges from
rising raw material costs, lower-than-expected utilization, and the
Peer & Industry Analysis
Growth
X
400
P/E
NUE vs.
Market
NUE vs.
Sector
More Value
More Growth
Price/Sales
NUE vs.
Market
NUE vs.
Sector
200
More Value
More Growth
Price/Book
0
NUE
AA
NEM
NUE vs.
Market
NUE vs.
Sector
ACI
ABX
ASH
FCX
VMC
P/E
The graphics in this section are designed to
allow investors to compare NUE versus its
industry peers, the broader sector, and the
market as a whole, as defined by the Argus
Universe of Coverage.
• The scatterplot shows how NUE stacks up
versus
its
peers
on
two
key
characteristics: long-term growth and
value. In general, companies in the lower
left-hand corner are more value-oriented,
while those in the upper right-hand corner
are more growth-oriented.
• The table builds on the scatterplot by
displaying more financial information.
• The bar charts on the right take the
analysis two steps further, by broadening
the comparison groups into the sector
level and the market as a whole. This tool
is designed to help investors understand
how NUE might fit into or modify a
diversified portfolio.
Value
5
5-yr Growth Rate(%)
Market Cap
Ticker Company
($ in Millions)
ABX Barrick Gold Corporation
49,281
FCX
Freeport Mcmoran Copper & Gold 43,756
NEM Newmont Mining Corp
29,840
NUE Nucor Corp
14,195
AA
Alcoa Inc
10,856
VMC Vulcan Materials Co (Hldg Co
5,688
ASH Ashland Inc
5,009
X
United States Steel Corp
4,488
ACI
Arch Coal Inc
3,113
Peer Average
18,469
5-yr
Growth
Rate (%)
8.0
7.0
6.0
5.0
3.0
6.0
7.0
5.0
8.0
6.1
Current
FY P/E
10.1
10.5
11.9
13.2
13.1
-46.3
11.4
519.5
12.3
61.7
Net
Margin
(%)
32.8
21.8
21.8
3.9
2.4
-3.5
3.4
-.3
3.4
9.5
More Value
More Growth
More Value
More Growth
PEG
7.5
1-yr EPS
Growth
(%)
21.3
28.2
21.9
21.5
29.5
34.7
18.4
4,533.3
132.5
537.9
Argus
Rating
BUY
BUY
BUY
BUY
BUY
BUY
BUY
BUY
BUY
NUE vs.
Market
NUE vs.
Sector
5 Year Growth
NUE vs.
Market
NUE vs.
Sector
More Value
More Growth
Debt/Capital
NUE vs.
Market
NUE vs.
Sector
More Value
More Growth
Please see important information about this report on page 5
©2012 Argus Research Company
Argus Analyst Report
NYSE: NUE
NUCOR CORP
Report created Feb 2, 2012 Page 4 OF 5
Analyst's Notes...Continued
dumping of lower-cost imported steel, these issues have receded in
recent months as demand has improved. We expect these more
favorable industry fundamentals to continue through at least the
first half of 2012, which should help to drive the shares higher.
Our target price of $57 implies a multiple of 13.8-times our 2013
EPS estimate, still well below the low end of the historical P/E
range.
On February 1, BUY-rated NUE closed at $44.82, up $0.33.
Please see important information about this report on page 5
©2012 Argus Research Company
Argus Analyst Report
NYSE: NUE
METHODOLOGY & DISCLAIMERS
Report created Feb 2, 2012 Page 5 OF 5
About Argus
Argus Research, founded by Economist Harold Dorsey in 1934,
has built a top-down, fundamental system that is used by Argus
analysts. This six-point system includes Industry Analysis, Growth
Analysis, Financial Strength Analysis, Management Assessment,
Risk Analysis and Valuation Analysis.
Utilizing forecasts from Argus’ Economist, the Industry Analysis
identifies industries expected to perform well over the next
one-to-two years.
The Growth Analysis generates proprietary estimates for
companies under coverage.
In the Financial Strength Analysis, analysts study ratios to
understand profitability, liquidity and capital structure.
During the Management Assessment, analysts meet with and
familiarize themselves with the processes of corporate management
teams.
Quantitative trends and qualitative threats are assessed under
the Risk Analysis.
And finally, Argus’ Valuation Analysis model integrates a
historical ratio matrix, discounted cash flow modeling, and peer
comparison.
THE ARGUS RESEARCH RATING SYSTEM
Argus uses three ratings for stocks: BUY, HOLD, and SELL.
Stocks are rated relative to a benchmark, the S&P 500.
• A BUY-rated stock is expected to outperform the S&P 500 on
a risk-adjusted basis over a 12-month period. To make this
determination, Argus Analysts set target prices, use beta as the
measure of risk, and compare expected risk-adjusted stock
returns to the S&P 500 forecasts set by the Argus Market
Strategist.
• A HOLD-rated stock is expected to perform in line with the
S&P 500.
• A SELL-rated stock is expected to underperform the S&P 500.
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Morningstar Disclaimer
© 2012 Morningstar, Inc. All Rights Reserved. Certain financial information included in this report: (1) is proprietary to Morningstar and/or its content providers; (2) may not be
copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising
from any use of this information. Past performance is no guarantee of future results.
©2012 Argus Research Company
Argus Analyst Report