Nucor Corp Valuation – February 2016 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. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 10 Companies Benjamin Graham Would Invest In Today – February 2016.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a stock analysis showing a specific look at how Nucor Corp (NUE)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ 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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ModernGraham Valuation of NUE – February 2016
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||$12,586,920,941||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||4.15||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||-55.21%||Fail|
|6. Moderate PEmg Ratio||PEmg < 20||28.18||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||1.74||Pass|
|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||4.15||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||1.00||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
|MG Growth Estimate||-1.07%|
|MG Value based on 3% Growth||$20.71|
|MG Value based on 0% Growth||$12.14|
|Market Implied Growth Rate||9.84%|
|% of Intrinsic Value||442.62%|
Nucor CorpÂ qualifies for the Enterprising Investor but notÂ the more conservative Defensive Investor. Â The Defensive Investor is concerned with the insufficient earnings growth or stability over the last ten years, and the high PEmg ratio. Â The Enterprising Investor is only initially concerned by the lack of earnings growth over the last five years.Â As a result, Enterprising InvestorsÂ following the ModernGraham approach based on Benjamin Graham’s methods should feel comfortable proceeding with further research into the company.
As for a valuation,Â the company appears to be overvalued after seeingÂ itsÂ EPSmg (normalized earnings) decline from $1.54 in 2012 to an estimated $1.43 for 2016. Â This level of demonstrated earnings growth does not supportÂ the market’s implied estimate of 9.84% annual earnings growth over the next 7-10 years.Â As a result, the ModernGrahamÂ valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value belowÂ the price.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||-$3.37|
|Number of Consecutive Years of Dividend Growth||7|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||Dec2015|
|Total Current Assets||$5,754,380,000|
|Total Current Liabilities||$1,385,173,000|
|Shares Outstanding (Diluted Average)||320,687,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$1.14|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$1.43|
Other ModernGraham posts about the company
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The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.