Steel Stocks

Nucor Corporation Analysis – September 2015 Update $NUE

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Nucor Corporation (NUE) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Nucor Corporation (Nucor) manufactures steel and steel products. The Company also produces direct reduced iron (DRI) for use in the Company’s steel mills. It also processes ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig iron, hot briquetted iron (HBI) and DRI. Nucor operates in three segments: steel mills, steel products and raw materials. In the steel mills segment, Nucor produces and distributes sheet steel, plate steel, structural steel and bar steel. In the steel products segment, Nucor produces steel joists and joist girders, steel deck, fabricated concrete reinforcing steel, cold finished steel, steel fasteners, metal building systems, steel grating and expanded metal, and wire and wire mesh. In the raw materials segment, the Company produces DRI; brokers ferrous and nonferrous metals, pig iron, HBI and DRI; supplies ferro-alloys, and processes ferrous and nonferrous scrap metal.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of NUE – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end Fail
6. Moderate PEmg Ratio PEmg < 20 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 Pass
Score
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 Pass
3. Earnings Stability Positive EPS for 5 years prior Pass
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

NUE value Chart September 2015

EPSmg $1.69
MG Growth Estimate -1.45%
MG Value $9.44
Opinion Overvalued
MG Value based on 3% Growth $24.46
MG Value based on 0% Growth $14.34
Market Implied Growth Rate 8.23%
Current Price $42.11
% of Intrinsic Value 446.03%

Nucor Corporation qualifies for the Enterprising Investor but not the more conservative Defensive Investor.  The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years as well as the high PEmg ratios.  The Enterprising Investor is only concerned by the lack of earnings growth over the last five years.  As a result, all Enterprising Investors following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $1.87 in 2011 to an estimated $1.69 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 8.23% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Nucor Corporation (NUE)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

NUE Charts September 2015

Net Current Asset Value (NCAV) -$3.91
Graham Number $25.98
PEmg 24.97
Current Ratio 3.64
PB Ratio 1.76
Dividend Yield 3.54%
Number of Consecutive Years of Dividend Growth 6

 

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Most Recent Balance Sheet Figures

Total Current Assets $6,154,737,000
Total Current Liabilities $1,690,077,000
Long-Term Debt $4,360,600,000
Total Assets $15,068,180,000
Intangible Assets $2,865,148,000
Total Liabilities $7,407,474,000
Shares Outstanding (Diluted Average) 320,708,000

Earnings Per Share History

Next Fiscal Year Estimate $1.25
Dec14 $2.22
Dec13 $1.52
Dec12 $1.58
Dec11 $2.45
Dec10 $0.42
Dec09 -$0.94
Dec08 $5.98
Dec07 $4.94
Dec06 $5.68
Dec05 $4.13
Dec04 $3.51
Dec03 $0.20
Dec02 $0.52
Dec01 $0.36
Dec00 $0.95
Dec99 $0.70
Dec98 $0.75
Dec97 $0.84
Dec96 $0.71
Dec95 $0.79

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $1.69
Dec14 $1.82
Dec13 $1.41
Dec12 $1.54
Dec11 $1.87
Dec10 $2.12
Dec09 $3.30
Dec08 $5.23
Dec07 $4.47
Dec06 $3.76
Dec05 $2.45
Dec04 $1.44
Dec03 $0.45
Dec02 $0.60
Dec01 $0.67
Dec00 $0.81
Dec99 $0.75

Recommended Reading:

Other ModernGraham posts about the company

Nucor Corporation Analysis – June 2015 Update $NUE
23 Companies in the Spotlight This Week – 3/9/15
Nucor Corporation Quarterly Valuation – March 2015 $NUE
32 Companies in the Spotlight This Week – 12/6/14
Nucor Corporation Quarterly Valuation – December 2014 $NUE

Other ModernGraham posts about related companies

Cliffs Natural Resources Inc. Analysis – August 2015 Update $CLF
Nucor Corporation Analysis – June 2015 Update $NUE
Nucor Corporation Quarterly Valuation – March 2015 $NUE
United States Steel Corporation Annual Valuation – 2015 $X
Nucor Corporation Quarterly Valuation – December 2014 $NUE
Allegheny Technologies Inc. Annual Valuation – 2014 $ATI
Cliffs Natural Resources Inc. Annual Valuation – 2014 $CLF

Disclaimer:

The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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