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Nucor's Stock Down 22% in 6 Months: Should You Buy the Dip?
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Nucor Corporation’s (NUE - Free Report) shares have lost 22.4% in the past six months, underperforming the Zacks Steel Producers industry’s decline of 17.2%. The bearishness is partly due to the choppiness in the steel space as reflected by the significant retreat in U.S. steel prices driven by a combination of demand slowdown and oversupply, which have led to a downward revision in NUE’s earnings estimates.
Technical indicators show that NUE has been trading below the 200-day simple moving average (SMA) since May 22, 2024. The stock is also currently trading below its 50-day SMA. Following a death crossover on June 20, 2024, the 50-day SMA continues to read lower than the 200-day SMA, indicating a bearish trend. The stock also entered the oversold territory several times this year, the most recent being on Aug. 12. A Relative Strength Index (RSI) value below 30 indicates a stock is oversold.
Nucor Trades Below 50-Day SMA
Image Source: Zacks Investment Research
NUE is currently trading at a roughly 27% discount to its 52-week high of $203 reached on April 9, 2024.
Given the pullback in Nucor’s shares, investors might be tempted to snap up the stock. But is this the right time to buy NUE? Let’s take a look.
Expansion Actions & Acquisitions to Aid Nucor
Nucor remains committed to boosting production capacity, which should drive profitable growth and strengthen its position as a low-cost producer. The company has already commissioned some of its growth projects with Gallatin and Brandenburg mills showing strong production and shipment performance. NUE is investing $6.5 billion in eight major growth projects through 2027. These include the Apple Grove, WV, sheet mill (the largest project), the Lexington, NC, rebar micro mill and the Pacific Northwest rebar micro mill.
The company has been focusing on growth through strategic acquisitions over the past several years and has spent $5.8 billion on acquisitions since 2020. The recent acquisition of Southwest Data Products expanded its growing portfolio of solutions for data center customers. The buyout of Rytec Corporation will also allow Nucor to further expand beyond core steelmaking businesses into related downstream businesses. Adding high-performance doors is expected to create cross-selling opportunities with other Nucor businesses and significantly expand its product portfolio serving the commercial space.
NUE Remains Focused on Capital Allocation
Nucor is maximizing returns to shareholders by leveraging its strong balance sheet and cash flows. It ended second-quarter 2024 with strong liquidity including cash and cash equivalents and short-term investments of around $5.4 billion. NUE returned more than $1.7 billion through dividends and share repurchases in the first half of 2024. It has returned around $11.4 billion to shareholders through dividends and share repurchases since 2020. The company, in late 2023, raised its quarterly dividend by 6% to 54 cents per share. Nucor has increased its regular dividend for 51 straight years since it started paying dividends in 1973. It remains committed to return at least 40% of annual net earnings to shareholders.
NUE offers a dividend yield of 1.4% at the current stock price. Its payout ratio is 16% (a ratio below 60% is a good indicator that the dividend will be sustainable) with a five-year annualized dividend growth rate of 8.2%. Backed by strong financial health, the company's dividend is perceived to be safe and reliable.
Lower Steel Prices Mar NUE’s Prospects
Nucor, like most U.S. steel producers, is hamstrung by the significant downward correction in steel prices this year, which has largely contributed to the downward slide in the stock. U.S. steel prices have seen a sharp decline this year due to a slowdown in end-market demand after a strong run in late 2023 that extended into early 2024.
The benchmark hot-rolled coil (HRC) prices have retreated since early 2024, with prices plummeting to below $800 per short ton in March 2024 from $1,200 per short ton at the start of the year. The downside was influenced by a concoction of factors, including a pullback in steel mill lead times, an oversupply of steel exacerbated by increased imports, reduced demand from key industries and economic uncertainties.
Sluggish industrial production and construction activities also contributed to the decline. The price slump led to lower profitability for steel producers. U.S. HRC prices continued their downward slide through the second quarter, further pressured by an influx of imports. While the recent steel mill price hikes have led to a modest uptick in HRC prices, a significant recovery is not expected over the near term given the weak manufacturing backdrop and demand weakness. Prices are currently hovering around the $700 per short ton level.
While demand in automotive remains healthy, the residential construction sector has experienced a slowdown in the United States due to high interest rates, dampening steel demand in this key end market. Elevated borrowing costs and inflation have taken a bite out of the residential construction industry. Manufacturing activities have also weakened amid softening demand for goods and higher borrowing costs.
Lower steel selling prices are expected to hurt Nucor’s performance in the third quarter of 2024. NUE expects the anticipated reduction in average selling prices across its steel mills and steel products segments to result in lower sequential earnings in the third quarter.
NUE’s Earnings Estimates Going Down
The Zacks Consensus Estimate for 2024 for NUE has been revised downward over the past 60 days. The consensus estimate for the third quarter of 2024 has also been revised lower over the same time frame.
The Zacks Consensus Estimate for 2024 earnings is currently pegged at $10, suggesting a year-over-year decline of roughly 44.4%. Earnings are also expected to register a decline of roughly 57.6% in the third quarter.
Image Source: Zacks Investment Research
Nucor’s Valuation Looks Stretched
Despite the downside in its share price, Nucor is currently trading at a forward 12-month earnings multiple of 13.16X, a roughly 45.7% premium to the peer group average of 9.03X, and higher than its five-year median. The market appears to have priced its shares higher despite the bleak earnings trajectory.
Image Source: Zacks Investment Research
NUE Underperforms S&P 500
NUE’s shares have declined 14.9% year to date, outperforming the industry’s 18% decline while underperforming the S&P 500’s rise of 17.9%. Its major U.S. steel-making peers, Steel Dynamics, Inc. (STLD - Free Report) , United States Steel Corporation (X - Free Report) and Cleveland-Cliffs Inc. (CLF - Free Report) , have lost 0.1%, 23.1% and 34.1%, respectively, over the same period.
YTD Price Performance
Image Source: Zacks Investment Research
Final Thoughts: Hold Onto NUE for Now
Nucor benefits from its actions to expand its production capabilities and grow its business through strategic acquisitions. Its efforts to boost production capacity through several growth projects should drive profitability. However, NUE is exposed to the underlying challenges in the steel industry that have led to its underperformance.
Weaker steel prices coupled with declining earnings estimates, cast a pall on the company's prospects. Its stretched valuation also might not offer an attractive entry point at this time. It is not advisable to buy the dip in this Zacks Rank #3 (Hold) stock. Holding onto NUE stock will be prudent for investors who already own it.
Image: Bigstock
Nucor's Stock Down 22% in 6 Months: Should You Buy the Dip?
Nucor Corporation’s (NUE - Free Report) shares have lost 22.4% in the past six months, underperforming the Zacks Steel Producers industry’s decline of 17.2%. The bearishness is partly due to the choppiness in the steel space as reflected by the significant retreat in U.S. steel prices driven by a combination of demand slowdown and oversupply, which have led to a downward revision in NUE’s earnings estimates.
Technical indicators show that NUE has been trading below the 200-day simple moving average (SMA) since May 22, 2024. The stock is also currently trading below its 50-day SMA. Following a death crossover on June 20, 2024, the 50-day SMA continues to read lower than the 200-day SMA, indicating a bearish trend. The stock also entered the oversold territory several times this year, the most recent being on Aug. 12. A Relative Strength Index (RSI) value below 30 indicates a stock is oversold.
Nucor Trades Below 50-Day SMA
NUE is currently trading at a roughly 27% discount to its 52-week high of $203 reached on April 9, 2024.
Given the pullback in Nucor’s shares, investors might be tempted to snap up the stock. But is this the right time to buy NUE? Let’s take a look.
Expansion Actions & Acquisitions to Aid Nucor
Nucor remains committed to boosting production capacity, which should drive profitable growth and strengthen its position as a low-cost producer. The company has already commissioned some of its growth projects with Gallatin and Brandenburg mills showing strong production and shipment performance. NUE is investing $6.5 billion in eight major growth projects through 2027. These include the Apple Grove, WV, sheet mill (the largest project), the Lexington, NC, rebar micro mill and the Pacific Northwest rebar micro mill.
The company has been focusing on growth through strategic acquisitions over the past several years and has spent $5.8 billion on acquisitions since 2020. The recent acquisition of Southwest Data Products expanded its growing portfolio of solutions for data center customers. The buyout of Rytec Corporation will also allow Nucor to further expand beyond core steelmaking businesses into related downstream businesses. Adding high-performance doors is expected to create cross-selling opportunities with other Nucor businesses and significantly expand its product portfolio serving the commercial space.
NUE Remains Focused on Capital Allocation
Nucor is maximizing returns to shareholders by leveraging its strong balance sheet and cash flows. It ended second-quarter 2024 with strong liquidity including cash and cash equivalents and short-term investments of around $5.4 billion. NUE returned more than $1.7 billion through dividends and share repurchases in the first half of 2024. It has returned around $11.4 billion to shareholders through dividends and share repurchases since 2020. The company, in late 2023, raised its quarterly dividend by 6% to 54 cents per share. Nucor has increased its regular dividend for 51 straight years since it started paying dividends in 1973. It remains committed to return at least 40% of annual net earnings to shareholders.
NUE offers a dividend yield of 1.4% at the current stock price. Its payout ratio is 16% (a ratio below 60% is a good indicator that the dividend will be sustainable) with a five-year annualized dividend growth rate of 8.2%. Backed by strong financial health, the company's dividend is perceived to be safe and reliable.
Lower Steel Prices Mar NUE’s Prospects
Nucor, like most U.S. steel producers, is hamstrung by the significant downward correction in steel prices this year, which has largely contributed to the downward slide in the stock. U.S. steel prices have seen a sharp decline this year due to a slowdown in end-market demand after a strong run in late 2023 that extended into early 2024.
The benchmark hot-rolled coil (HRC) prices have retreated since early 2024, with prices plummeting to below $800 per short ton in March 2024 from $1,200 per short ton at the start of the year. The downside was influenced by a concoction of factors, including a pullback in steel mill lead times, an oversupply of steel exacerbated by increased imports, reduced demand from key industries and economic uncertainties.
Sluggish industrial production and construction activities also contributed to the decline. The price slump led to lower profitability for steel producers. U.S. HRC prices continued their downward slide through the second quarter, further pressured by an influx of imports. While the recent steel mill price hikes have led to a modest uptick in HRC prices, a significant recovery is not expected over the near term given the weak manufacturing backdrop and demand weakness. Prices are currently hovering around the $700 per short ton level.
While demand in automotive remains healthy, the residential construction sector has experienced a slowdown in the United States due to high interest rates, dampening steel demand in this key end market. Elevated borrowing costs and inflation have taken a bite out of the residential construction industry. Manufacturing activities have also weakened amid softening demand for goods and higher borrowing costs.
Lower steel selling prices are expected to hurt Nucor’s performance in the third quarter of 2024. NUE expects the anticipated reduction in average selling prices across its steel mills and steel products segments to result in lower sequential earnings in the third quarter.
NUE’s Earnings Estimates Going Down
The Zacks Consensus Estimate for 2024 for NUE has been revised downward over the past 60 days. The consensus estimate for the third quarter of 2024 has also been revised lower over the same time frame.
The Zacks Consensus Estimate for 2024 earnings is currently pegged at $10, suggesting a year-over-year decline of roughly 44.4%. Earnings are also expected to register a decline of roughly 57.6% in the third quarter.
Nucor’s Valuation Looks Stretched
Despite the downside in its share price, Nucor is currently trading at a forward 12-month earnings multiple of 13.16X, a roughly 45.7% premium to the peer group average of 9.03X, and higher than its five-year median. The market appears to have priced its shares higher despite the bleak earnings trajectory.
NUE Underperforms S&P 500
NUE’s shares have declined 14.9% year to date, outperforming the industry’s 18% decline while underperforming the S&P 500’s rise of 17.9%. Its major U.S. steel-making peers, Steel Dynamics, Inc. (STLD - Free Report) , United States Steel Corporation (X - Free Report) and Cleveland-Cliffs Inc. (CLF - Free Report) , have lost 0.1%, 23.1% and 34.1%, respectively, over the same period.
YTD Price Performance
Final Thoughts: Hold Onto NUE for Now
Nucor benefits from its actions to expand its production capabilities and grow its business through strategic acquisitions. Its efforts to boost production capacity through several growth projects should drive profitability. However, NUE is exposed to the underlying challenges in the steel industry that have led to its underperformance.
Weaker steel prices coupled with declining earnings estimates, cast a pall on the company's prospects. Its stretched valuation also might not offer an attractive entry point at this time. It is not advisable to buy the dip in this Zacks Rank #3 (Hold) stock. Holding onto NUE stock will be prudent for investors who already own it.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.