Steel Stocks

Nucor Corporation Valuation – May 2018 $NUE

Company Profile (excerpt from Reuters): Nucor Corporation (Nucor), incorporated on March 28, 1958, manufactures steel and steel products. The Company produces direct reduced iron (DRI) for use in the Company’s steel mills. It operates in three segments: steel mills, steel products and raw materials. It also processes ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig iron, hot briquetted iron (HBI) and DRI. The Company’s operations include various international trading companies that buy and sell steel and steel products manufactured by the Company and others. The Company is also a recycler in North America, using scrap steel as the primary raw material in producing steel and steel products.

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Downloadable PDF version of this valuation:

ModernGraham Valuation of NUE – May 2018

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 $19,400,392,946 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.49 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 520.73% Pass
6. Moderate PEmg Ratio PEmg < 20 17.12 Pass
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 2.18 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 2.49 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.77 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 Pass

 

Stage 2: Determination of Intrinsic Value

EPSmg $3.56
MG Growth Estimate 15.00%
MG Value $137.19
Opinion Undervalued
MG Grade B+
MG Value based on 3% Growth $51.67
MG Value based on 0% Growth $30.29
Market Implied Growth Rate 4.31%
Current Price $60.99
% of Intrinsic Value 44.46%

Nucor Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the insufficient earnings stability over the last ten years. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.

As for a valuation, the company appears to be Undervalued after growing its EPSmg (normalized earnings) from $1.78 in 2014 to an estimated $3.56 for 2018. This level of demonstrated earnings growth outpaces the market’s implied estimate of 4.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value above the price.

At the time of valuation, further research into Nucor Corporation revealed the company was trading above its Graham Number of $57.79. The company pays a dividend of $1.51 per share, for a yield of 2.5%, putting it among the best dividend paying stocks today. Its PEmg (price over earnings per share – ModernGraham) was 17.12, which was below the industry average of 34.8, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-0.21.

Nucor Corporation performs fairly well in the ModernGraham grading system, scoring a B+.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$0.21
Graham Number $57.79
PEmg 17.12
Current Ratio 2.49
PB Ratio 2.18
Current Dividend $1.51
Dividend Yield 2.48%
Number of Consecutive Years of Dividend Growth 8

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Most Recent Balance Sheet Figures

Balance Sheet Information 3/1/2018
Total Current Assets $7,079,216,000
Total Current Liabilities $2,844,581,000
Long-Term Debt $3,242,865,000
Total Assets $16,121,246,000
Intangible Assets $3,087,686,000
Total Liabilities $7,145,219,000
Shares Outstanding (Diluted Average) 320,474,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $5.40
Dec2017 $4.10
Dec2016 $2.48
Dec2015 $0.25
Dec2014 $2.11
Dec2013 $1.52
Dec2012 $1.58
Dec2011 $2.45
Dec2010 $0.42
Dec2009 -$0.94
Dec2008 $5.98
Dec2007 $4.94
Dec2006 $5.68
Dec2005 $4.15
Dec2004 $3.50
Dec2003 $0.20
Dec2002 $0.52
Dec2001 $0.36
Dec2000 $0.95
Dec1999 $0.70
Dec1998 $0.75

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $3.56
Dec2017 $2.46
Dec2016 $1.62
Dec2015 $1.32
Dec2014 $1.78
Dec2013 $1.41
Dec2012 $1.54
Dec2011 $1.87
Dec2010 $2.12
Dec2009 $3.30
Dec2008 $5.23
Dec2007 $4.47
Dec2006 $3.76
Dec2005 $2.45
Dec2004 $1.44
Dec2003 $0.45
Dec2002 $0.60

Recommended Reading:

Other ModernGraham posts about the company

Nucor Corporation Valuation – December 2016 $NUE
Nucor Corp Valuation – August 2016 $NUE
Nucor Corp Valuation – February 2016 Update $NUE
Nucor Corporation Analysis – September 2015 Update $NUE
Nucor Corporation Analysis – June 2015 Update $NUE

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Nucor Corporation Valuation – December 2016 $NUE
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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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