UNIVERSITY OF OREGON
INVESTMENT GROUP
November 14, 2008
Materials
Steel
NUCOR CORPORATION
BUY
Stock Data
Price (52 weeks)
Symbol/Exchange
Beta
Shares Outstanding
Average daily volume
(3 month average)
Current market cap
Current Price
Dividend
Dividend Yield
Valuation (per share)
DCF Analysis
Comparables Analysis
Target Price
Current Price
(as of 11/10/2008)
Summary Financials
in Thousands
Revenue
Net Income
$26.30-$83.56
NUE/NYSE
1.96
313,949,595
9,763,460
$11,029,049,272
$35.13
$ 1.28
3.64%
$58.61
$25.35
$51.96
$35.13
2007 Actual
$16,592,976
$1,471,947
BUSINESS OVERVIEW
Nucor Corporation was incorporated in Delaware in 1958. Now headquartered in Charlotte, NC, manufactures and sells steel
and steel products. Nucor produces the most steel of any company in the United States and is the largest steel recycler of scrap
steel, the primary material for production in minimill’s in North America. Nucor operates in 23 states, Ontario, Canada,
Trinidad and has its corporate offices in Charlotte, NC.
Overall Business Strategy
Nucor’s growth strategy is driven on four fronts. The first is to optimize and increase efficiency of current operations. The
second is through strategic acquisitions. The third is through capital expenditures on new plants and development of new
technologies for markets in which it believes it has a substantial cost advantage. Finally, the fourth is global expansion through
joint ventures that incorporate and leverage new technologies.
Covering Analyst: Austin Swank
Email: aswank@uoregon.edu
The University of Oregon Investment Group (UOIG) is a student run organization whose purpose is strictly educational. Member
students are not certified or licensed to give investment advice or analyze securities, nor do they purport to be. Members of UOIG
may have clerked, interned or held various employment positions with firms held in UOIG’s portfolio. In addition, members of UOIG
may attempt to obtain employment positions with firms held in UOIG’s portfolio.
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Product Diversity
Nucor is North America’s most diversified steel producer. With this diversity, Nucor is not dependant on one or two markets
in the short run. This diversity has been a significant contributor to Nucor’s ability to maintain profitability every quarter since
1966.
Operating Segments
Nucor operates under three main segments consisting of Steel Mills, Steel Products and Raw Materials.
Steel Mills
Nucor operates scrap-based steel mills in nineteen facilities which utilize modern steelmaking techniques and produce steel at a
cost competitive with steel manufactured anywhere in the world. The steel mills segment is comprised of bar, sheet, structural
and plate mills. Bar mills produce concrete reinforcing bars, hot rolled bars, rod, light shapes, structural angles and channel,
wire mesh and guard rail in carbon and alloy steels. These products primarily serve the agricultural, automotive, construction,
energy, furniture, machinery, metal building, railroad, recreational equipment, shipbuilding, heavy truck and trailer market
segments. Sheet mills produce flat-rolled steel for the automotive, appliance, pipe and tube, construction and other industries.
Structural mills produce wide range steel beams, pilings and heavy structural steel products for fabricators, construction
companies, manufacturers and steel service centers. The plate mill segment operates two plate mills. The first, in North
Carolina, produces plate for manufacturers of heavy equipment, rail cars, ships, barges, refinery tanks and other. The other
mill in Tuscaloosa, AL complements the North Carolina plant by offering thinner gauges of coiled and cut-to-length plate
used in the pipe and tube, pressure vessel, transportation and construction industries. Through the first three quarters of 2008,
the steel mills segment comprised 71% of total sales.
Operations
Nucor’s mills are among the most modern and efficient mills in the United States. The mills use recycled steel scrap and other
metallics to melt in electric arc furnaces and pour into continuous casting systems. Rolling mills then convert the billets,
blooms and slabs into rebar, angles, rounds, channels, flats, sheet, beams, plate and other products. Operations in the rolling
mills are highly automated and require fewer operating employees compared to older mills. Due to this, employment costs are
only approximately 7% of sales. Steel mills consume large quantities of electricity and gas, yet total energy costs per ton
remained flat from 2006 to 2007. Moreover, energy costs were less than 10% of sales dollars in both years due to the efficiency
of Nucor’s mills and partial hedging against exposure to increases in energy costs. The most significant element in the total
cost of steel production is scrap and scrap substitutes. The average cost of scrap and scrap substitute increased 13% in 2007
from 2006. However, a raw material surcharge implemented in 2004 has allowed Nucor to maintain operating margins in spite
of volatile scrap and scrap substitute costs. The annual production capacity of all Nucor’s steel mills is more than 25,000,000
tons. Total shipments for the first nine months increased by 5% from 16,503,000 in 2007 to 17,384,000 in 2008. Steel
shipments to outside customers increased 1% to 15,285,000 tons compared with 15,157,000 tons. This increase is smaller than
total shipments due to Nucor acquiring some of its downstream customers involved in the company’s vertical integration plan.
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Steel Products Segment and Operations
The steel products segment is comprised of Vulcraft and Verco, reinforcing products, steel mesh, grating and fastener,
building group and light gauge steel framing, and cold finish. Through the first three quarters of 2008, this segment comprised
approximately 16.2% of revenue.
Vulcraft produces and markets steel joist and joist girders. Material costs, primarily steel, were approximately 55% of joist
revenue in 2007. However, Vulcraft obtained 99% of its steel requirements for joists and joist girders from the Nucor bar
mills. Freight costs comprise less than 10% of revenue by maintaining an extensive fleet of trucks in-house to ensure on-time
delivery. Verco produces steel decking and obtains 75% of its steel requirements internally from Nucor sheet mills. Steel joist,
joist girders and steel decking are used extensively as part of the roof and floor support systems in manufacturing buildings,
retail stores, shopping centers, warehouses, schools, churches, hospitals, and somewhat in mutli-story buildings and
apartments. Therefore sales of these products are heavily dependent on the non-residential building construction market.
Reinforcing products are operated under the subsidiary of Harris Steel. It fabricates reinforcing steel (rebar) in Canada and the
U.S. Reinforcing products are essential to concrete construction by supplying strength as well as protecting the concrete from
cracking. Harris Steel provides value through bidding on a wide variety of construction work which can be primarily classified
as infrastructure, including highways, bridges, reservoirs, utilities, hospitals, schools, airports and stadiums.
The steel mesh, grating and fastener division and subsidiaries manufacture wire products, grating and industrial bolts. Nucor
and its subsidiary, Harris Steel, produce steel mesh. In October 2007, Nucor acquired substantially all of the assets of steel
mesh producer Nelson Steel for approximately $53.2 million in cash. The combined annual production capacity of the steel
mesh facilities is approximately 233,000 tons.
Building Group and Light Gauge Steel Framing
Nucor manufactures custom-engineered and standard metal buildings and components and load bearing light gauge steel
framing systems for the commercial, residential and institutional construction markets.
Buildings Group
Nucor manufacturers metal buildings and components throughout the U.S. under Nucor Building Systems and four previous
Magnatrax metal building brands: American Buildings Company, Kirby Building Systems, Gulf States Manufacturers and CBC
Steel Buildings. This sub-segment produces buildings ranging from less than 1,000 square feet to more than 1,000,000 square
feet. Complete metal building packages can be customized and designed with other materials such as glass, wood, and masonry
to produce buildings designed with costs and aesthetics in mind to customers’ special requirements. The Buildings Group sales
were a record 195,000 tons in 2007. The group also obtains a significant portion of its steel requirements internally from the
Nucor bar and sheet mills.
Light Gauge Steel Framing
Nucor, operating as NUCONSTEEL (“Nucon”), specializes in load bearing light gauge steel framing systems for both the
residential and commercial construction markets. Nucon also sells its products through a growing network of authorized
fabricators located throughout the United States. In 2004, Nucon introduced the NUFRAME automated wall panel system
and the NUTRUSS automated truss system. Nucon uses these systems in the residential and truss fabrication facility. In March
of 2006, Nucor formed a joint venture with Lennar Corporation, NEXFRAME, LP. This was established to provide
comprehensive light gauge steel framing solutions for residential construction markets across the nation.
Cold Finish
Nucor is North America’s largest producer of cold finish products for a wide range of industrial markets. This division
produces cold drawn, turned, ground, and polished steel bars that are used for shafting and precision machine parts. The bars
are sold to the automotive, farm machinery, hydraulic, appliance and electric motor industries as well as by service centers.
Nucor Cold Finish bars are used in tens of thousands of products including anchor bolts, farm machinery, hydraulic cylinders
and shafting for air conditioning compressors, ceiling fan motors, garage door openers, electric motors and lawn mowers. All
of the segments facilities are among the most modern in the world, using in-line electronic quality testing. The segment also
obtains most of its steel from Nucor bar mills. These two factors combined results in a highly competitive cost structure. In
2007 sales were a record 449,000 tons, a 37% increase over 2006, and capacity is approximately 860,000 tons per year.
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Raw Materials
Nucor has a raw materials strategy to control six to seven million tons per year of high quality metallics for consumption at its
steel mills. Nucor has a 25% share in a joint venture with three other companies operating a HIsmelt plant in Kwinana,
Western Australia. This process converts iron ore fines and coal fines to liquid metal, removing the need for blast furnaces,
sinter/pellet plants and coke ovens. Nucor also operates an idled direct reduced iron plant under the Nu-Iron Unlimited
division based in Trinidad. This site benefits from a low cost supply of natural gas and favorable positioning for receipt of
Brazilian iron ore and shipment of direct reduced iron to the United States. In February 2008, Nucor acquired SHV North
America Corporation, which owned 100% of The David J. Joseph Company. This acquisition expanded Nucor’s direct
ownership in the steel scrap supply chain and allowed the company to further its raw materials strategy. Since scrap is the
company’s largest cost, this acquisition will give Nucor more efficiency and a lower cost of goods sold as a percentage of
revenue.
RECENT NEWS
November 9, 2008 – China announces an economic stimulus program totaling $586 billion aiming to bolster domestic demand
and help avert a global recession. The stimulus package is intended to alleviate the slowdown in China’s housing and
investment boom. This should increase global demand and purchases of raw materials from the U.S. and other developed
nations.
October 25, 2008 – Chairman Dan DiMicco announces that the international financial crisis has not affected the company’s
plans to build a $2 billion pig iron facility. If it is built, it would represent the first domestic greenfield pig iron facility built in
more than 30 years. This would help Nucor become more efficient and reduce cost of goods sold as pig iron gets added to
recycled scrap steel to improve quality.
October 16, 2008 – Nucor reports record results for third quarter and first nine months of 2008. Third quarter net earnings
and net sales increased by 93% and 75% respectively from the same period in 2007. The increases in sales and net earnings are
attributable in part to the significant acquisitions made by Nucor in the last 21 months including Harris Steel Group in March
2007 and The David J. Joseph Company in February 2008.
February 29, 2008 – Nucor completed the acquisition of SHV North America Corporation, which owns 100% of The David
Joseph Company (DJJ) for $1.44 billion. DJJ has been the broker of ferrous scrap for Nucor since 1969. This acquisition
provides an ideal growth platform for Nucor to expand ownership in the steel scrap supply chain. Furthermore, this provides
a partial hedge against scrap market volatility for their steel mills.
INDUSTRY ANALYSIS AND NUCOR
Nucor operates in the Iron and Steel industry, primarily as a minimill but also with certain characteristics of integrated
producers. Minimills are steel companies that produce steel by melting recycled ferrous scrap in electric arc furnaces. These
differ from integrated steel makers in that integrated steel mills produce steel from iron ore, coal and lime. This allows
minimills to have both a labor and capital cost advantage compared to integrated steel makers.
Market Segments
This industry serves four major segments comprising 75% of total
production. The largest consumers of steel production are downstream
steel processers which include manufacturers of pipe or rolled steel
products and steel service and distribution centers which sell steel to a
range of different industries. The automotive and construction
industries account for 15% and 14% of demand respectively. According
to analysts projections, the car and automobile manufacturing industry
is expected to grow 7.7% over the next five years, and the single family
home building industry is expected to grow by 23.9% over the same
period.
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Cost Structure
Industry wide, the major cost incurred by companies is expenditures
on raw materials, which accounts for approximately 51% of
revenue. Fuel and salaries account for 8% and 6% of revenue
respectively. Even though the industry is highly capital intensive, it
employs close to 100,000 people. Substantial amounts of fuel are
necessary for production using both blast furnaces and electric arc
furnaces, which is Nucor’s primary form of production.
Depreciation accounts for approximately 4% of expenses.
Economic growth is the primary factor affecting short-term
performance of the industrial metals industry as measured by real
gross domestic product. Companies in this industry are dependent
on the fortunes of the cyclical auto and construction industries due to those two industries accounting for 29.5% of US direct
steel shipments in 2007 according to the American Iron and Steel Institute (AISI). Currently steel is facing strong competition
from other materials for motor vehicle manufacturing and thus demand is expected to trend downward. However, in 1998 the
AISI established the North American Steel Framing Alliance to promote the use of light gauge steel framing in residential
construction. Steel provides an advantage over normal housing materials, in that steel is stronger, has relatively steady prices,
and recycled steel can be used. The industry is working to boost the market penetration of steel as a housing material as
currently only a very small percentage of new homes are framed with steel. So far during this economic crunch, the growth in
steel as a housing material has offset the loss of automotive demand.
Steel produced by minimills is not competitive in terms of quality as compared with output from large integrated mills. To
improve the quality for use in motor vehicle manufacturing and appliances, the raw material inputs must be adjusted, usually
by increasing pig iron as a portion in the mix. With most minimill firms, this requires a reliance on integrated producers as
most pig iron is produced in blast furnaces. However, Nucor plans to construct its own pig iron facility which will mitigate this
dependence on outside firms.
Currently, the most important long-term trends shaping the industrial metals industries are related to new manufacturing
technology, consolidation, foreign competition and imports, and raw material costs. Nucor uses the breakthrough technology
of strip casting, to which Nucor holds exclusive rights in the United States and Brazil. Strip casting involves the direct casting
of molten steel into final shape and thickness without further hot or cold rolling. This allows lower investment and operating
costs, reduced energy consumption by up to 80%, and small scale plants that can be built with existing technology. Since
Nucor is a larger firm in the industry, they are more likely to pursue acquisitions versus being acquired. Raw material costs
have been controlled through the company’s vertical integration strategy.
S.W.O.T. ANALYSIS
Strengths
• Exclusive rights to strip casting in the United States and Brazil which could revolutionize the industry, further
solidifying Nucor’s cost advantage
• Hedges and raw material surcharges to pass increases in costs to customers
• Large cash balance available to repurchase stock or make future acquisitions should valuations appear attractive
• Performance is not tied to any one steel market due to their product line diversity
Weaknesses
• Although the company is diversified, it is dependent on the automotive and construction sector
• Falling US scrap prices contribute to declining steel prices
Opportunities
• Steel as an increasingly used material in construction, especially the housing sector
• Further gains in efficiency and reductions environmental externalities
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Threats
• An increasing number of minimills being built around the world as the cost and environmental advantage become
more apparent
• Steel faces strong competition from other materials in motor vehicle manufacturing
CATALYSTS
Upside
• Steel framing becomes a new standard for house framing
• Bailout for auto industry increase demand for steel
• Government initiatives to improve access to credit are successful
Downside
• Oversupply resulting from domestic overcapacity or an increase in imported steel drives prices down
• Chinese production grows disproportionately to Chinese demand to the point China begins exporting
COMPARABLES ANALYSIS
When selecting my comparables, I searched for companies that are direct competitors with Nucor; therefore they are all
subject to the same macroeconomic risk. Since Nucor’s operations incorporate both those of a minimill and an integrated
producer, I wanted to include both types of companies. Also, I wanted to use companies that have similar business structures
and revenue drivers.
I used the following metrics:
• EV/Revenue - This was used to measure size of the company in relation to its ability to generate revenue.
• EV/EBITDA - This metric is used for several reasons. One is that as some of the comparables in this industry are
highly leveraged, EBITDA was used to see the earning power before depreciation and amortization are calculated into
accounting profits.
• EV/Operating Cash Flows - This metric is also used for several reasons. One is that since companies in this industry
carry high amounts of debt, operating cash flows are important in the ability to pay down debt.
When calculating the EV/Operating Cash Flows, one comparable, Commercial Metals Company, had negative cash flows for
the trailing twelve months. Therefore, I removed this from the calculation and weighted the other four comparables at 25%
each.
United States Steel Corporation (X) – 20%
United States Steel Corporation produces steel products. It operates through three segments: Flatrolled Products, U. S. Steel Europe, and Tubular Products. The Flat-rolled Products segment
produces slabs, sheets, tin mill products, strip mill plates, rounds, and coke. It serves customers in
the service center, conversion, transportation, construction, container, and appliance and electrical
markets in North America. The U.S. Steel Europe segment manufactures and sells sheet, strip mill plate, tin mill, and tubular
products, as well as heating radiators and refractories. It serves customers in the central, western, and southern European
construction, service center, conversion, container, transportation, and appliance and electrical, as well as oil, gas, and
petrochemical markets. The Tubular products segment produces and sells seamless and welded tubular products for the oil,
gas, and petrochemical markets. United States Steel Corporation is also involved in the production and sale of iron ore pellets,
as well as the provision of transportation services. (Yahoo! Finance)
Gerdau Ameristeel Corporation (GNA) – 20%
Gerdau Ameristeel Corporation, through its subsidiaries, operates steel minimills in the
United States and Canada. The company operates through two segments, Minimills and
Downstream Operations. The Minimills segment manufactures and markets various
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steel products, including reinforcing steel bars, merchant bars, structural shapes, beams, special sections, coiled wire rods, and
flat rolled sheets. The Downstream Operations segment offers rebar fabrication and epoxy coating, railroad spikes, and cold
drawn products, as well as engages in super light beam processing; and the production of elevator guide rails, grinding balls,
wire mesh, collated nails, wire drawing, and fence posts. It sells its products to steel service centers, steel fabricators, and
original equipment manufacturers for use in various industries, including non-residential, infrastructure, commercial, industrial
and residential construction, metal building, manufacturing, mining, automotive, cellular and electrical transmission, and
equipment manufacturing industries. (Yahoo! Finance)
Steel Dynamics (STLD) – 20%
Steel Dynamics, Inc., together with its subsidiaries, engages in the manufacture and sale of
steel products in the United States. It operates in three segments: Steel Operations,
Fabrication Operations, and Steel Scrap and Scrap Substitute Operations. The Steel
Operations segment offers hot rolled, cold rolled, and coated steel products, including light gauge hot-rolled, galvanized, and
painted products; structural steel beams and pilings; special bar quality and merchant bar quality rounds, and round-cornered
squares; and billets and merchant steel products, such as angles, plain rounds, flats, and channels. This segment serves cold
finishers, forgers, intermediate processors, original equipment manufacturers, steel service centers, and fabricators. The
Fabrication Operations segment engages in fabricating trusses, girders, steel joists, and steel decking used within the
nonresidential construction industry. The Steel Scrap and Scrap Substitute Operations segment offers heavy melting steel,
busheling, bundled scrap, shredded scrap, and other scrap metal products, such as steel turnings and cast iron used in foundry
and steel mill applications. (Yahoo! Finance)
AK Steel Holding (AKS) – 20%
AK Steel Holding Corporation, through its subsidiaries, produces flat-rolled carbon, stainless, and
electrical steels, as well as tubular products in the United States. It manufactures flat-rolled carbon steels,
including coated, cold-rolled, and hot-rolled products; and specialty stainless and electrical steels that are
sold in slab, hot band, and sheet and strip forms. The company also involves in finishing flat-rolled carbon
and stainless steel into welded steel tubing, which is used in the automotive, large truck, and construction
markets; and trades in steel and steel products in Europe. It sells flat-rolled carbon steel products primarily
to automotive manufacturers; and to customers in the appliance, industrial machinery and equipment, and construction
markets consisting of manufacturers of home appliances, and heating, ventilation, and air conditioning equipment. The
company also sells its coated, cold rolled, and hot rolled carbon steel products to distributors, service centers, and converters.
AK Steel Holding sells its stainless steel products primarily to manufacturers and their suppliers in the automotive industry;
manufacturers of food handling, chemical processing, pollution control, and medical and health equipment; and distributors
and service centers. It sells its electrical steels to the manufacturers of power transmission and distribution transformers, and
electrical motors and generators. (Yahoo! Finance)
Commercial Metals Group (CMC) – 20%
Commercial Metals Company engages in the manufacture, recycle, market, and distribution
of steel and metal products and related materials and services in the United States and
internationally. It operates four steel minimills that produce reinforcing bar, angles, flats,
rounds, small beams, fence-post sections, and other shapes; scrap metal processing facilities
that directly support these minimills; a copper tube minimill; and a railroad rail salvage company. The company also operates a
rolling mill that produces primarily reinforcing bar and merchant products; wire rods; and steel fabrication plants primarily for
reinforcing bar. In addition, Commercial Metals Company involves in domestic fabrication operations through steel
fabrication and processing plants that bend, weld, cut, fabricate, distribute, and place steel, primarily reinforcing bar and angles;
warehouses that sell or rent products for the installation of concrete; produces special sections for floors and support for
ceilings and floors; produces steel fence posts; and treat steel with heat to strengthen and provide flexibility. Further, it engages
in the recycling operations through metal processing plants located in the states of Texas, Oklahoma, Kansas, Louisiana,
Arkansas, Missouri, Georgia, Tennessee, Florida, South Carolina, and North Carolina. Additionally, the company markets and
distributes steel; copper and aluminum coil; sheet and tubing; ores; metal concentrates; industrial minerals; ferroalloys; and
chemicals. Its customers include steel, nonferrous metals, metal fabrication, chemical, refractory, and transportation
businesses. (Yahoo! Finance)
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DISCOUNTED CASH FLOW ANALYSIS
Revenue
I projected revenue by each operating segment to get an annual growth rate for the company as a whole. The long-term
strength of the global infrastructure and the associated global growth in steel demand will drive Nucor’s growth and
profitability. I project 2008 Quarter 4 revenues will grow by less than the first three quarters of this year due to current
economic conditions. Therefore, I have each segment growing at a slower pace and growth dropping off steeply in 2009 from
2008. I feel that until more economic data is presented to the markets about future global growth and conditions, it is best to
take a more conservative view. Furthermore, I feel that due to the current conditions, Nucor will make fewer acquisitions in
2009 and beyond, after their considerable cash balance is depleted to normal industry levels, from acquisitions and capital
expenditures, than in 2008, which drove much of the growth in 2008.
Steel Mills
Net sales for the steel mills segment increased 39% over the first three quarters of 2007 due to the $249 increase (38%) in the
average sales price per ton. In addition, net sales to outside customers increased by 1% over the same time period. I believe
that revenue growth will steeply decline in 2009 and the growth rate will begin to decline at a slower pace from 2010 on, but
with positive revenue growth.
Steel Products
The 55% increase in the steel products segment’s sales for the first three quarters was due to a 35% increase in shipments,
primarily attributable to the acquisitions of Harris in March of 2007, Magnatrax Corporation in August 2007, and Ambassador
in August 2008. Furthermore, Harris had continued to grow its rebar fabrication business by acquiring other rebar fabrication
companies which contributed to the rise in shipments. Increased sales were also due to a 16% increase in the average sales
price per ton. With this data, I projected steel products revenue growth at a lower rate due to Nucor making fewer
acquisitions.
Raw Materials
Through the third quarter of 2008, approximately 77% of outside sales in the raw materials segment were from the brokerage
operations of DJJ and approximately 22% of the outside sales were from the scrap processing facilities. Prior to the acquisition
of DJJ, there were no outside sales of raw materials. Nucor first started reporting raw materials as a separate line item in 2008.
All Other
The “all other” category primarily includes Novosteel S.A., a steel trading business of which Nucor owns 75%. The period
over period increase in sales are due to Nucor owning the interest in Novosteel for all of 2008 versus only a portion of 2007
(since March 2007), combined with increased sales price per ton. From 2009 onwards, I feel that this segment will grow at a
much lower rate.
Expenses and Other Items
I projected expenses using the percentage of revenue method.
Cost of Products Sold
Over the past three years, Nucor has faced rising costs to produce their products. I feel that this trend will continue into 2009
and then begin to reverse with cost of goods decreasing as a percentage of revenue as Nucor continues their vertical
integration and better incorporates their acquisitions into the company. With raw materials as a large percentage of costs
coupled with expansions and purchases of raw material suppliers, Nucor will be able to increase their gross margin through
internal sales.
Marketing, Administrative, and Other Expenses
The primary components of this line item are freight and profit sharing costs. I projected this as a constant percentage of
revenue as Nucor has the ability to pass on increases in costs of freight and fuel to customers. Profit sharing fluctuates with
pre-tax earnings and fundamentally to a certain extent revenues.
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Depreciation and Amortization
As previously stated, the industry average for deprecation is 4% of revenues. However, I feel that since Nucor experiences a
higher return on assets translating to higher sales for depreciable assets, an amount less than 4% is more appropriate. Also
Nucor has not had depreciation expense greater than 4% since 2004. I projected depreciation for 2008 using the percentage
from the first three quarters of this year. From here, I increased depreciation as a percent of revenue as the company continues
to make further capital expenditures, which I believe will provide diminishing returns causing depreciation expense to move
towards the industry average. Amortization was projected using management’s projections through 2012. I noticed a
decreasing trend; therefore I continued to decrease amortization as a percentage of revenue.
Working Capital
Working capital is projected as a percentage of sales. I feel that excess cash does not need to be removed from current assets
as the company reports working capital as a straight subtraction of all current assets minus all current liabilities. The current
ratio was 2.4 at the end of the first nine months of 2008 and 3.2 at the end of 2007. Nucor plans to use $1.6 billion in cash to
finance the new pig iron facility in 2010. Therefore, I decreased current assets in 2010 and set this percentage as the new
constant, onward to account for this change. Furthermore, I believe that after this major capital expenditure is completed and
acquisitions decrease from 2008 levels, Nucor will work towards bringing its current ratio back to pre 2008 levels by using cash
generated from operations above the project percentage for current assets. Therefore I show current liabilities decreasing as a
percentage of revenue.
Capital Expenditures & Acquisitions
Management projects capital expenditures to be approximately $1.1 billion in 2008 which represents an increase of more than
50% over capital expenditures in 2007. This change can be attributed to acquisitions made during 2008 and the associated
expenditures necessary for integration. One major capital expenditure on the horizon is the planned $2 billion state-of-the-art
iron making facility to produce pig iron mentioned before. In accordance with company projections, this project will be
complete over multiple years with plans to start up in either 2010 or 2011. After this project is completed, I believe that capital
expenditures will decrease as a percentage of revenue due to a shift of focus from expansion to maintenance in line as a
proportion of revenue growth.
Acquisitions for the first three quarters of 2008 totaled approximately $1.8 billion. Due to the semi-sporadic nature of
acquisitions, it was difficult to project future purchases. However, I feel that due to current economic conditions causing some
companies to become more attractive for acquisition and Nucor’s vertical integration strategy, the company will continue to
make acquisitions into the future. Acquisitions in 2007 and 2008 were significantly higher than in previous years and I believe
this trend will not continue into the future with acquisitions moving back towards the historical norm. However, Nucor will
continue to make acquisitions but at a lesser amount. To account for the unpredictability of acquisitions, I spread future
acquisition costs across the projected period.
Cost of Debt
In June 2008, Nucor issued $1.00 billion in debt in three tranches, $250 million 5% notes due 2013, $500 million 5.85% notes
due 2018 and $250 million 6.4% notes due 2037. The weighted average of this debt is 5.775%. I feel this is an appropriate
representation of Nucor’s cost of debt given that it was issued during the current credit crisis and the company maintains an
S&P Long-Term Credit Rating of A+ and a Short-Term rating of “Extremely Strong (A1)”. Furthermore, Nucor holds the
highest credit rating of any North American metals and mining company.
Beta
I first ran a five year monthly regression of Nucor’s returns on the S&P 500, but found that at 1.01 this was considerably lower
than the beta’s I regressed for rest of the comparables. Furthermore, this fundamentally did not make sense by looking at the
stocks returns compared to the S&P 500 as Nucor movements are more volatile. Based on this conclusion, I calculated my
beta using the Hamada equation. I included each of my comparable companies as well as other firms operating in the steel
industry. The Debt/Equity ratio was computed using book value of long-term debt divided by the book value of equity.
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RECOMMENDATION
After analyzing the steel manufacturing industry and how Nucor operates within the industry, I feel that Nucor’s competitive
positioning is conducive to industry outperformance. Although the comparables analysis shows Nucor is 28% overvalued, I
believe this is partially due to an overcorrection of the comparables stock prices. I feel that my discounted cash flow analysis
with an undervaluation of 67% provides a better representation of the value of the firm. Based on this assumption, I have
weighted my DCF at 80% and the comparables analysis at 20%, giving an undervaluation of 48.28%. Currently, Tall Firs is
underweight IME with the benchmark. DADCO’s primarily invests in small cap growth companies. With this undervaluation
and the current sector weightings, I recommend a BUY for the Tall Firs portfolio.
10
Nucor Corporation
university of oregon investment group
http://uoig.uoregon.edu
APPENDIX 1 – COMPARABLES ANALYSIS
$ 35.04
313,949,595
$ 11,000,793,809
$ 3,086,200,000
$ 14,086,993,809
$ 4,387,341,000
$ 23,909,148,000
1.96
$ 1,866,873,000
US Steel Corp (X)
20%
$ 31.23
116,256,638
$ 3,630,694,805
$ 3,120,000,000
$ 6,750,694,805
$ 3,163,000,000
$ 24,184,000,000
2.96
$ 2,041,000,000
Gerdau Ameristeel Corporation (GNA)
20%
$ 4.12
432,982,716
$ 1,783,888,790
$ 3,054,184,000
$ 4,838,072,790
$ 3,588,306,000
$ 8,826,487,000
2.36
$ 628,283,000
Steel Dynamics (STLD)
20%
$ 8.88
181,691,718
$ 1,613,422,456
$ 2,235,784,000
$ 3,849,206,456
$ 1,193,548,000
$ 8,321,121,000
1.78
$ 483,316,000
AK Steel Holding (AKS)
20%
$ 9.13
112,016,138
$ 1,022,707,340
$ 652,300,000
$ 1,675,007,340
$ 1,087,000,000
$ 7,877,500,000
3.39
$ 163,500,000
0.59
3.21
7.55
0.28
2.13
3.31
0.55
1.35
7.70
0.46
3.23
7.96
0.21
1.54
10.24
Nucor (NUE)
Current Price
Shares Outstanding
Market Cap
Long‐Term Debt
Enterprise Value
EBITDA
Revenue
Beta
Operating Cash Flow
Metrics
EV/Revenue
EV/EBITDA
EV/Operating Cash Flow
Commercial Metals Company (CMC) Mean
20%
$ 10.54 $ 12.78
113,799,128 $ 191,349,267.60
$ 1,199,442,809 $ 1,850,031,239.91
$ 1,197,533,000 $ 2,051,960,200.00
$ 2,396,975,809 $ 3,901,991,439.91
$ 528,968,000 $ 1,912,164,400.00
$ 10,427,378,000 $ 11,927,297,200.00
2.07
2.51
$ (43,456,000) $ 654,528,600.00
0.23
4.53
‐55.16
Implied Price
Current Price
Overvalued
Implied Value Multiple Weights
0.35 $ 16.56
33.33%
2.56 $ 25.89
33.33%
7.30 $ 33.60
33.33%
$ 25.35
$ 35.04
28%
APPENDIX 2 – REVENUE PROJECTIONS
in Thousands
Net Sales to External Customers
Steel Mills
% Growth
Steel Products
% Growth
Raw Materials
% Growth
All Other
% Growth
Total
% Growth
2007A
2008Q123 A
2008Q4 E
2008A+E
2009E
$ 13,311,212 $ 13,844,672 $ 4,125,464 $ 17,970,136 $ 20,665,657
2.20%
39.09%
35.0%
15.0%
$ 3,051,648 $ 3,243,420 $ 1,334,052 $ 4,577,472 $ 5,492,966
76.79%
55.46%
50.0%
20.0%
$ 2,059,797 $ 343,300 $ 2,403,097 $ 2,619,376
9.0%
$ 230,116 $ 364,499 $ 95,733 $ 460,232 $ 485,545
133.05%
100.0%
5.5%
$ 16,592,976 $ 19,512,388 $ 5,898,549 $ 25,410,937 $ 29,263,544
12.49%
59.99%
53.14%
15.16%
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
$ 23,558,849
14.0%
$ 6,426,771
17.0%
$ 2,828,926
8.0%
$ 509,822
5.0%
$ 33,324,367
13.88%
$ 26,503,705
12.5%
$ 7,390,786
15.0%
$ 3,026,951
7.0%
$ 532,764
4.5%
$ 37,454,206
12.39%
$ 29,419,112
11.0%
$ 8,129,865
10.0%
$ 3,208,568
6.0%
$ 554,075
4.0%
$ 41,311,619
10.30%
$ 31,772,641
8.0%
$ 8,780,254
8.0%
$ 3,368,996
5.0%
$ 573,467
3.5%
$ 44,495,358
7.71%
$ 33,996,726
7.0%
$ 9,394,872
7.0%
$ 3,503,756
4.0%
$ 590,671
3.0%
$ 47,486,025
6.72%
$ 36,036,530
6.0%
$ 9,958,564
6.0%
$ 3,608,869
3.0%
$ 608,391
3.0%
$ 50,212,354
5.74%
$ 37,838,356
5.0%
$ 10,456,492
5.0%
$ 3,717,135
3.0%
$ 626,643
3.0%
$ 52,638,626
4.83%
$ 39,351,890
4.0%
$ 10,874,752
4.0%
$ 3,828,649
3.0%
$ 645,442
3.0%
$ 54,700,733
3.92%
$ 40,532,447
3.0%
$ 11,200,995
3.0%
$ 3,943,508
3.0%
$ 664,806
3.0%
$ 56,341,755
3.00%
Nucor Corporation
university of oregon investment group
http://uoig.uoregon.edu
APPENDIX 3 – DISCOUNTED CASH FLOWS
in Thousands
Net Sales
% Growth
Costs, Expenses, and Other
Cost of Products Sold
% Revenue
Gross Margin
% Revenue
Marketing, administrative, and other expenses
% Revenue
Interest expense, net
% Revenue
Minority interests
% Revenue
Other income
% Revenue
Total Operating Expenses
% Revenue
Earnings before Income Taxes
% Revenue
Tax Rate
Provision for Income Taxes
Net Earnings
% Revenue
Add Back: Depreciation and Amortization
Add Back: (1‐T) x Interest Expense
Cash Flows from Operations
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
Δ NWC
Subtract: Capital Expenditures
% of Revenue
Subtract: Acquisitions
% of Revenue
FCF
PV of FCF
0.25
1.25
2.25
3.25
4.25
5.25
6.25
7.25
8.25
9.25
10.25
2003A
2004A
2005A
2006A
2007A
2008Q123 A 2008Q4E
2008A+E
2009E
2010E
2011E
2012E
2013E
2014E
2015E
2016E
2017E
2018E
$ 6,265,823 $ 11,376,828 $ 12,700,999 $ 14,751,270 $ 16,592,976 $ 19,512,388 $ 5,898,549 $ 25,410,937 $ 29,263,544 $ 33,324,367 $ 37,454,206 $ 41,311,619 $ 44,495,358 $ 47,486,025 $ 50,212,354 $ 52,638,626 $ 54,700,733 $ 56,341,755
81.57%
11.64%
16.14%
12.49%
59.99%
53.14%
15.16%
13.88%
12.39%
10.30%
7.71%
6.72%
5.74%
4.83%
3.92%
3.00%
$ 5,993,492
95.65%
$ 272,331
4.35%
$ 165,369
2.64%
$ 24,627
0.39%
$ 23,904
0.38%
$ (11,547)
‐0.18%
$ 6,195,845
98.88%
$ 69,978
1.12%
7.40%
$ 5,181
$ 64,797
1.03%
$ 364,112
$ 22,804
$ 451,713
$ 1,639,784
26.17%
$ 615,067
9.82%
$ 1,024,717
$ 215,408
3.44%
$ 34,941
0.56%
$ 201,364
$ 9,174,611
80.64%
$ 2,202,217
19.36%
$ 374,730
3.29%
$ 22,352
0.20%
$ 80,840
0.71%
$ (1,596)
‐0.01%
$ 9,650,937
84.83%
$ 1,725,891
15.17%
35.22%
$ 607,906
$ 1,117,985
9.83%
$ 383,305
$ 14,479
$ 1,515,769
$ 3,182,132
27.97%
$ 1,042,776
9.17%
$ 2,139,356
$ 1,114,639
$ 285,925
2.51%
$ 169,646
1.49%
$ (54,441)
$ 10,108,805
79.59%
$ 2,592,194
20.41%
$ 459,460
3.62%
$ 4,201
0.03%
$ 110,650
0.87%
$ (9,200)
‐0.07%
$ 10,673,916
84.04%
$ 2,027,083
15.96%
35.02%
$ 709,834
$ 1,317,249
10.37%
$ 376,126
$ 2,730
$ 1,696,105
$ 4,081,611
32.14%
$ 1,228,618
9.67%
$ 2,852,993
$ 713,637
$ 331,466
2.61%
$ 154,864
1.22%
$ 496,138
$ 11,284,606
76.50%
$ 3,466,664
23.50%
$ 592,473
4.02%
$ (37,365)
‐0.25%
$ 219,121
1.49%
$ ‐
0.00%
$ 12,058,835
81.75%
$ 2,692,435
18.25%
34.75%
$ 935,653
$ 1,756,782
11.91%
$ 365,269
$ (24,380)
$ 2,097,671
$ 4,683,065
31.75%
$ 1,421,917
9.64%
$ 3,261,148
$ 408,155
$ 338,404
2.29%
$ 223,920
1.52%
$ 1,127,192
$ 13,462,927
81.14%
$ 3,130,049
18.86%
$ 577,764
3.48%
$ 5,469
0.03%
$ 293,501
1.77%
$ ‐
0.00%
$ 14,339,661
86.42%
$ 2,253,315
13.58%
34.68%
$ 781,368
$ 1,471,947
8.87%
$ 427,556
$ 3,573
$ 1,903,076
$ 5,073,249
30.57%
$ 1,582,036
9.53%
$ 3,491,213
$ 230,065
$ 520,353
3.14%
$ 1,542,666
9.30%
$ (390,008)
$ 15,941,654
81.70%
$ 3,570,734
18.30%
$ 605,641
3.10%
$ 68,109
0.35%
$ 255,920
1.31%
$ 4,895,315
82.99%
$ 1,003,235
17.01%
$ 220,214
3.73%
$ 20,829
0.35%
$ 74,422
1.26%
$ ‐
$ 20,836,969
82.00%
$ 4,573,969
18.00%
$ 825,855
3.25%
$ 88,938
0.35%
$ 330,342
1.30%
$ ‐
$ 24,288,741
83.00%
$ 4,974,802
17.00%
$ 951,065
3.25%
$ 87,791
0.30%
$ 380,426
1.30%
$ ‐
$ 27,325,981
82.00%
$ 5,998,386
18.00%
$ 1,083,042
3.25%
$ 83,311
0.25%
$ 433,217
1.30%
$ ‐
$ 30,618,813
81.75%
$ 6,835,393
18.25%
$ 1,217,262
3.25%
$ 93,636
0.25%
$ 486,905
1.30%
$ ‐
$ 33,668,970
81.50%
$ 7,642,650
18.50%
$ 1,342,628
3.25%
$ 103,279
0.25%
$ 537,051
1.30%
$ ‐
$ 36,152,479
81.25%
$ 8,342,880
18.75%
$ 1,446,099
3.25%
$ 111,238
0.25%
$ 578,440
1.30%
$ ‐
$ 38,463,680
81.00%
$ 9,022,345
19.00%
$ 1,543,296
3.25%
$ 118,715
0.25%
$ 617,318
1.30%
$ ‐
$ 40,672,006
81.00%
$ 9,540,347
19.00%
$ 1,631,901
3.25%
$ 125,531
0.25%
$ 652,761
1.30%
$ ‐
$ 42,637,287
81.00%
$ 10,001,339
19.00%
$ 1,710,755
3.25%
$ 131,597
0.25%
$ 684,302
1.30%
$ ‐
$ 44,307,594
81.00%
$ 10,393,139
19.00%
$ 1,777,774
3.25%
$ 136,752
0.25%
$ 711,110
1.30%
$ ‐
$ 45,636,822
81.00%
$ 10,704,934
19.00%
$ 1,831,107
3.25%
$ 140,854
0.25%
$ 732,443
1.30%
$ ‐
$ 16,871,324
86.46%
$ 2,641,064
13.54%
34.68%
$ 915,966
$ 1,725,098
8.84%
$ 405,347
$ 44,488
$ 2,174,933
$ 7,632,980
$ 5,210,780
88.34%
$ 687,769
11.66%
36.22%
$ 249,125
$ 438,643
7.44%
$ 138,403
$ 13,284
$ 590,330
$ 7,877,391
$ 22,082,104
86.90%
$ 3,328,833
13.10%
35.00%
$ 1,165,091
$ 2,163,741
8.52%
$ 543,750
$ 57,810
$ 2,765,301
$ 7,877,391
31.00%
$ 3,303,422
13.00%
$ 4,573,969
$ 1,082,756
$ 1,100,000
4.33%
$ 2,032,875
8.00%
$ (1,450,330)
$ 25,708,023
87.85%
$ 3,555,521
12.15%
35.00%
$ 1,244,432
$ 2,311,088
7.90%
$ 632,607
$ 57,064
$ 3,000,760
$ 9,071,698
31.00%
$ 3,804,261
13.00%
$ 5,267,438
$ 693,469
$ 1,170,542
4.00%
$ 877,906
3.00%
$ 258,842
$ 218,446
$ 28,925,551
86.80%
$ 4,398,816
13.20%
35.00%
$ 1,539,586
$ 2,859,231
8.58%
$ 738,687
$ 54,152
$ 3,652,070
$ 9,664,066
29.00%
$ 4,332,168
13.00%
$ 5,331,899
$ 64,461
$ 1,332,975
4.00%
$ 333,244
1.00%
$ 1,921,391
$ 1,415,700
$ 32,416,615
86.55%
$ 5,037,591
13.45%
35.00%
$ 1,763,157
$ 3,274,434
8.74%
$ 855,038
$ 60,863
$ 4,190,335
$ 10,861,720
29.00%
$ 4,494,505
12.00%
$ 6,367,215
$ 1,035,316
$ 1,310,897
3.50%
$ 374,542
1.00%
$ 1,469,580
$ 945,357
$ 35,651,927
86.30%
$ 5,659,692
13.70%
35.00%
$ 1,980,892
$ 3,678,800
8.91%
$ 973,956
$ 67,131
$ 4,719,887
$ 11,980,370
29.00%
$ 4,750,836
11.50%
$ 7,229,533
$ 862,318
$ 1,342,628
3.25%
$ 413,116
1.00%
$ 2,101,824
$ 1,180,445
$ 38,288,256
86.05%
$ 6,207,102
13.95%
35.00%
$ 2,172,486
$ 4,034,617
9.07%
$ 1,085,687
$ 72,305
$ 5,192,608
$ 12,903,654
29.00%
$ 4,894,489
11.00%
$ 8,009,165
$ 779,631
$ 1,334,861
3.00%
$ 444,954
1.00%
$ 2,633,163
$ 1,291,142
$ 40,743,009
85.80%
$ 6,743,016
14.20%
35.00%
$ 2,360,055
$ 4,382,960
9.23%
$ 1,196,648
$ 77,165
$ 5,656,773
$ 13,770,947
29.00%
$ 4,986,033
10.50%
$ 8,784,915
$ 775,750
$ 1,305,866
2.75%
$ 356,145
0.75%
$ 3,219,012
$ 1,378,053
$ 43,082,199
85.80%
$ 7,130,154
14.20%
35.00%
$ 2,495,554
$ 4,634,600
9.23%
$ 1,315,564
$ 81,595
$ 6,031,759
$ 14,561,583
29.00%
$ 5,021,235
10.00%
$ 9,540,347
$ 755,433
$ 1,380,840
2.75%
$ 251,062
0.50%
$ 3,644,425
$ 1,362,132
$ 45,163,941
85.80%
$ 7,474,685
14.20%
35.00%
$ 2,616,140
$ 4,858,545
9.23%
$ 1,379,132
$ 85,538
$ 6,323,215
$ 15,265,202
29.00%
$ 5,132,266
9.75%
$ 10,132,936
$ 592,588
$ 1,447,562
2.75%
$ 263,193
0.50%
$ 4,019,871
$ 1,311,744
$ 46,933,229
85.80%
$ 7,767,504
14.20%
35.00%
$ 2,718,626
$ 5,048,878
9.23%
$ 1,433,159
$ 88,889
$ 6,570,926
$ 15,863,213
29.00%
$ 5,196,570
9.50%
$ 10,666,643
$ 533,707
$ 1,504,270
2.75%
$ 136,752
0.25%
$ 4,396,196
$ 1,252,452
$ 48,341,226
85.80%
$ 8,000,529
14.20%
35.00%
$ 2,800,185
$ 5,200,344
9.23%
$ 1,476,154
$ 91,555
$ 6,768,053
$ 16,339,109
29.00%
$ 5,352,467
9.50%
$ 10,986,642
$ 319,999
$ 1,408,544
2.50%
$ 140,854
0.25%
$ 4,898,656
$ 1,218,450
$ 3,121,974 $ 3,303,422
$ 4,511,006 $ 4,573,969
$ 1,082,756
$ 806,152 $ 293,848
4.13%
$ 1,827,165 $ 205,710
9.36%
3.49%
$ (458,384) $ (991,983)
$ (958,884)
12
Nucor Corporation
university of oregon investment group
http://uoig.uoregon.edu
APPENDIX 4 – DEPRECIATION & AMORTIZATION
in Thousands
Net Sales
Depreciation
% Revenue
Amortization
% Revenue
Depreciation & Amortization
% Revenue
2005A
$ 12,700,999
$ 375,054
2.95%
$ 1,072
0.01%
$ 376,126
2.96%
2006A
$ 14,751,270
$ 363,936
2.47%
$ 1,333
0.01%
$ 365,269
2.48%
2007A
$ 16,592,976
$ 403,172
2.43%
$ 24,384
0.15%
$ 427,556
2.58%
2008Q123 A
$ 19,512,388
$ 354,291
1.82%
$ 51,056
0.26%
$ 405,347
2.08%
2008Q4 E
$ 5,898,549
$ 109,459
1.86%
$ 28,944
0.49%
$ 138,403
2.35%
2008A+E
$ 25,410,937
$ 463,750
1.83%
$ 80,000
0.31%
$ 543,750
2.14%
2009E
$ 29,263,544
$ 556,007
1.90%
$ 76,600
0.26%
$ 632,607
2.16%
2010E
$ 33,324,367
$ 666,487
2.00%
$ 72,200
0.22%
$ 738,687
2.22%
2011E
$ 37,454,206
$ 786,538
2.10%
$ 68,500
0.18%
$ 855,038
2.28%
2012E
$ 41,311,619
$ 908,856
2.20%
$ 65,100
0.16%
$ 973,956
2.36%
2013E
$ 44,495,358
$ 1,023,393
2.30%
$ 62,294
0.14%
$ 1,085,687
2.44%
2014E
$ 47,486,025
$ 1,139,665
2.40%
$ 56,983
0.12%
$ 1,196,648
2.52%
2015E
$ 50,212,354
$ 1,255,309
2.50%
$ 60,255
0.12%
$ 1,315,564
2.62%
2016E
$ 52,638,626
$ 1,315,966
2.50%
$ 63,166
0.12%
$ 1,379,132
2.62%
2017E
$ 54,700,733
$ 1,367,518
2.50%
$ 65,641
0.12%
$ 1,433,159
2.62%
2018E
$ 56,341,755
$ 1,408,544
2.50%
$ 67,610
0.12%
$ 1,476,154
2.62%
2017E
$ 54,700,733
$ 15,863,213
29.00%
$ 5,196,570
9.50%
$ 10,666,643
19.50%
$ 533,707
2018E
$ 56,341,755
$ 16,339,109
29.00%
$ 5,352,467
9.50%
$ 10,986,642
19.50%
$ 319,999
APPENDIX 5 – NET WORKING CAPITAL
in Thousands
Current Assets
% Revenue
Current Liabilities
% Revenue
Net Working Capital
% Revenue
Δ NWC
2005A
$ 12,700,999
$ 4,081,611
32.14%
$ 1,228,618
9.67%
$ 2,852,993
22.46%
$ 713,637
2006A
$ 14,751,270
$ 4,683,065
31.75%
$ 1,421,917
9.64%
$ 3,261,148
22.11%
$ 408,155
2007A
$ 16,592,976
$ 5,073,249
30.57%
$ 1,582,036
9.53%
$ 3,491,213
21.04%
$ 230,065
2008Q123 A
2008Q4E
2008A+E
$ 19,512,388 $ 5,898,549 $ 25,410,937
$ 7,632,980 $ 7,877,391 $ 7,877,391
31.00%
$ 3,121,974 $ 3,303,422 $ 3,303,422
13.00%
$ 4,511,006 $ 4,573,969 $ 4,573,969
18.00%
$ 1,082,756 $ 1,082,756
2009E
$ 29,263,544
$ 9,071,698
31.00%
$ 3,804,261
13.00%
$ 5,267,438
18.00%
$ 693,469
2010E
$ 33,324,367
$ 9,664,066
29.00%
$ 4,332,168
13.00%
$ 5,331,899
16.00%
$ 64,461
2011E
$ 37,454,206
$ 10,861,720
29.00%
$ 4,494,505
12.00%
$ 6,367,215
17.00%
$ 1,035,316
2012E
$ 41,311,619
$ 11,980,370
29.00%
$ 4,750,836
11.50%
$ 7,229,533
17.50%
$ 862,318
2013E
$ 44,495,358
$ 12,903,654
29.00%
$ 4,894,489
11.00%
$ 8,009,165
18.00%
$ 779,631
2014E
$ 47,486,025
$ 13,770,947
29.00%
$ 4,986,033
10.50%
$ 8,784,915
18.50%
$ 775,750
2015E
$ 50,212,354
$ 14,561,583
29.00%
$ 5,021,235
10.00%
$ 9,540,347
19.00%
$ 755,433
2016E
$ 52,638,626
$ 15,265,202
29.00%
$ 5,132,266
9.75%
$ 10,132,936
19.25%
$ 592,588
13
Nucor Corporation
university of oregon investment group
http://uoig.uoregon.edu
APPENDIX 6 – DISCOUNTED CASH FLOWS ANALYSIS ASSUMPTIONS
Tax Rate
10 Year Treasury
Beta
Market Risk Premium
% Equity
% Debt
CAPM
Cost of Debt
WACC
Assumptions for Discounted Cash Flows
35.0% Terminal Growth Rate
3.818% Terminal Value
1.96 PV Terminal
7% Sum of PV Free Cash Flow
78.1% Long Term Debt
21.9% Firm Value
17.57% Equity Value
5.78% Shares Outstanding
14.54% Implied Price
Current Price
Undervalued
3%
$ 43,726,935
$ 10,876,270
$ 10,615,038
$ 3,091,600
$ 21,491,308
$ 18,399,708
313,950
$ 58.61
$ 35.04
67%
APPENDIX 7 – HAMADA BETA & SENSITIVITY ANALYSIS
Company
US Steel Corporation (X)
Steel Dynamics (STLD)
Commercial Metals Group (CMC)
Reliance Steel & Aluminum (RS)
AK Steel Holding (AKS)
AcelorMIttal ADS (MT)
Worthington Industries (WOR)
Gerdau Ameristeel Corporation (GNA)
Mean
Median
2.259
2.302
Pure Business Beta (Sample BL)
Sample D/E
Unlevered Business Beta
NUE D/E
NUE Beta
Hamada Formula
Beta (β)
3.27
2.84
2.40
1.96
1.53
1.09
0.66
Beta
D/E Ratio Standard Error
2.965
0.51
0.450
1.779
1.29
0.438
2.067
0.73
0.391
1.796
0.93
0.370
3.394
0.45
0.618
2.538
0.46
0.481
1.179
0.27
0.297
2.358
0.69
0.444
0.66
0.60
0.436
0.441
2.26
0.66
1.58
0.38
1.96
1.58*((1+(1‐0.35)*.38))
Standard Deviation
3σ
2σ
1σ
‐1σ
‐2σ
‐3σ
Implied Price
$35.47
$40.11
$47.22
$58.61
$78.12
$115.19
$200.19
Undervalued
1.22%
14.47%
34.75%
67.26%
122.94%
228.74%
471.32%
Weight
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
12.5%
Nucor Corporation
university of oregon investment group
http://uoig.uoregon.edu
APPENDIX 8 – SOURCES
•
•
•
•
•
•
•
•
•
•
Nucor 10-K
Nucor 10-Q
Nucor 2007 Annual Report
Nucor.com
IBIS World
S&P Net Advantage
WorldSteel.org
American Iron and Steel Institute (AISI)
Yahoo! Finance
Google Finance
15