Tags: NuCor | steel | demand | NUE

NuCor: M&A Slows, Steel Demand in Question

By    |   Wednesday, 25 April 2012 02:26 PM

NuCor (NUE) has worked hard through the crisis to make the most of a slew of acquisitions, the pace of which naturally slowed as the global economy slid into recession. Analysts see the glass as half-full, but some warn that turning M&A into growth will require a strong turnaround in global steel demand.

Nucor manufactures steel and steel products and produces direct reduced iron (DRI) for use in its own mills.Through affiliates NuCor acquired in 2008, it processes ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig iron, hot briquetted iron (HBI) and DRI.

Nucor also is North America’s largest recycler, using scrap steel as the primary raw material in producing steel and steel products. In 2011, the company recycled approximately 19.7 million tons of scrap steel.

Nucor has announced plans to spend approximately $290 million for projects in its Tennessee, Nebraska, and South Carolina bar mills that will expand special bar quality (SBQ) and wire rod capacity by 1 million tons. The projects are expected be completed by the end of 2013.

The company believes it will meet its goal of controlling between 6 million and 7 million tons of annual capacity in high quality scrap substitutes.

“The pace at which we have been acquiring other companies slowed dramatically in late 2008, but in the preceding four years we completed numerous acquisitions,” NuCor management recently told investors.

“Since late 2006 our annual capacity to produce downstream value-added products has more than doubled to over 4.6 million tons through acquisitions of a steel decking producer, fabricators of rebar, cold finished bars and steel grating, a manufacturer of metal buildings and a wire mesh fabricator.”

Nucor reports its results in three segments: steel mills, steel products and raw materials. Steel mills are Nucor’s dominant segment, representing approximately 70 percent of sales to external customers at the end of fiscal 2011.

NuCor is a $12.33 billion market cap firm in a sector, metals and mining, where the company average is $14.53 billion. Its trailing 12-month P/E ratio is 16.21 percent, compared to 10.19 for the sector.

The company has a five-year projected price-to-earnings-growth (PEG) ratio of 31.32, lower than the sector average. Its projected earnings per share growth over the next year is 60.08 percent, compared to 43.87 percent for the sector.

Close to target

Wall Street is mixed on NuCor, with multiple sell and buy calls at the moment. In the buy or outperform camp are Merrill Lynch, Citigroup, Jeffries, Morgan Stanley and UBS.

Calling it a sell or underperform are Columbine Capital Services, EVA Dimensions, Thomas White International, and Market Edge.

Standard & Poor’s has a neutral rating on the stock, largely because its recent price is close to their target. Moreover, NuCor is susceptible to the global recovery, which remains a major question mark. S&P's 12-month target price is $41.

“Risks to our opinion and target price include a decline in demand for steel and scrap in 2012 instead of the increases we project,” S&P wrote in late April.

NuCor next reports on July 17.

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Wednesday, 25 April 2012 02:26 PM
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