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Steel producer Nucor NUE is having a stellar year as basic materials stocks have continued to act as a hedge against inflation. Steel prices have soared this year making Nucor a beneficiary as a leading producer of structural steel and steel bars, among other steel and iron-produced components.
We can see from the nearby decade chart that steel and iron prices have skyrocketed over the last year in correlation with 40-year high inflation. The producer price index (PPI) for Iron and Steel has begun to settle over the last few months as inflation cools slightly and the economy slows.
Still, the higher prices have helped Nucor post unprecedented earnings growth. Investors may be wondering if NUE stock would be a good addition to their portfolio in December and beyond.
Image Source: U.S. Bureau of Labor Statistics
Growth & Outlook
NUE’s Q3 earnings beat the Zacks consensus for a fourth consecutive quarter. Nucor’s CEO Leon Topalian said the company has already achieved a record-breaking year for earnings per share through the first three quarters, believing it will set a new record for full-year earnings in 2022.
NUE’s earnings are expected to rise a stellar 27% YoY to $29.49 per share. Fiscal 2023 earnings are projected to drop -56% after a very tough-to-follow year. It is also important to note that Nucor’s FY22 and FY23 earnings estimates have slightly declined over the last 90 days.
Sales are forecasted to follow the same trend, by climbing 12% this year but dropping -21% in FY23 to $32.18 billion. The FY23 projections still represent 42% growth from pre-pandemic levels of $22.58 billion in 2019 sales.
Image Source: Zacks Investment Research
Performance & Valuation
NUE is up an impressive +31% in 2022 vs. the S&P 500’s -15% and its peer group’s +4%, which includes notable competitors United States Steel X and Steel Dynamics STLD.
More impressive, NUE’s total return over the last two years is an outstanding +102% to easily top the benchmark and its peer group’s +50%.
Image Source: Zacks Investment Research
Monitoring Nucor’s valuation will be important as steel prices decline. NUE trades at 5X forward earnings. This is slightly above the industry average of 3.9X but NUE has been a leader in the industry. NUE shares also trade at a discount to its decade-long high of 41.4X and the median of 15.9X. We can see from the chart below NUE’s valuation is a discount to the S&P 500’s 18.8X.
Image Source: Zacks Investment Research
Even better, NUE’s cash flow per share, which calculates the amount of incoming cash vs. the amount of outgoing cash, is noticeably better than its industry at 26.8X vs. its peer’s 4.7X.
This is an indicator that the company is in good financial health and made great use of its historically profitable market environment. Nucor’s cash on hand at the end of the third quarter was $3.51 billion which, as of now, would represent a 34% increase from 2021.
Image Source: Zacks Investment Research
Bottom Line
Nucor currently lands a Zacks Rank #3 (Hold) and has an overall “A” VGM grade. While earnings estimates have slightly declined over the last quarter NUE still trades at a significant discount relative to its past in terms of price to earnings.
The company has also made good use of its profitability from higher steel prices by adding cash to its balance sheet. This may continue to reward investors who hold the stock as Nucor offers a respectable 1.33% annual dividend yield which has increased in each of the last five years.
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It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
Free: See Our Top Stock and 4 Runners Up >>
Nucor Corporation (NUE) : Free Stock Analysis Report
Steel Dynamics, Inc. (STLD) : Free Stock Analysis Report
United States Steel Corporation (X) : Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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