The steel mills segment produces hot rolled steel

Info icon This preview shows pages 11–12. Sign up to view the full content.

View Full Document Right Arrow Icon
The Steel Mills segment produces hot-rolled steel products, including angles, rounds, flats, channels, sheet, wide-flange beams, and cold-rolled steel products. Steel Products provides steel joists and joist girders, steel deck, fabricated concrete- reinforcing steel, cold-finished steel, steel fasteners, steel grating, and metal and wire mesh. The Raw Materials segment produces direct-reduced iron (DRI); brokers ferrous and nonferrous metals, pig iron, hot briquetted iron, and DRI; and processes ferrous and nonferrous scrap products. The company also has international steel trading operations. INDUSTRY Our recommended weighting for the Basic Materials sector is Over-Weight, based on stabilizing commodity prices and signs that the global economy will avoid recession. The sector accounts for 2.9% of the S&P 500, and includes industries such as chemicals, paper, metals and mining. Over the past five years, the weighting has ranged from 2.5% to 4%. We think investors should consider allocating about 4% of their diversified portfolios to stocks in this sector. The sector outperformed in 2016, with a gain of 14.1%, and underperformed in 2015, with a loss of 10.4%. It is performing largely in line with the market thus far in 2017, with a gain of 10.5%. The P/E ratio on projected 2018 EPS is 17.0, close to the market multiple. The sector’s debt ratios appear sound, as many in the group have deleveraged over the past three years. Yields of 2.0% are close to the market average. The Street consensus calls for earnings growth of 35.6% in 2017 and 15.7% in 2018. VALUATION Nucor shares have traded between $51 and $70 over the past 52 weeks and are currently in the upper half of the range. The shares are trading at 12.9-times our 2018 EPS estimate and at 12.2-times our 2019 forecast, compared to a five-year annual range of 15-37. The shares are trading at a price/EBITDA ratio of 7.9, below the midpoint of the five-year range of 6.0-11.4 but above the peer average of 6.8. The current price/sales multiple is 1.0, compared to a five-year historical range of 0.6-1.4 and a peer average of 0.7. The price/book multiple is 2.3, above the midpoint of the five-year range of 1.5-2.8 and the peer average of 2.0. We continue to view Nucor as a best-in-class steel manufacturer with a strong balance sheet. We also expect the company to benefit from favorable government action on steel imports, recent acquisitions, and gradual improvement in nonresidential construction. Our target price of $70, combined with the dividend, implies a potential return of 13% from current levels. On February 5 at midday, BUY-rated NUE traded at $64.18, down $0.08. (David Coleman, 2/5/18)
Image of page 11

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
M ARKET U PDATE - 12 - Argus Research Co. (ARC) is an independent investment research provider whose parent company, Argus Investors’ Counsel, Inc. (AIC), is registered with the U.S. Securities and Exchange Commission. Argus Investors’ Counsel is a subsidiary of The Argus Research Group, Inc. Neither The Argus Research Group nor any affiliate is a member of the FINRA or the SIPC. Argus Research is not a registered broker dealer and does not have investment banking operations. The Argus trademark, service mark and logo are the intellectual property of The Argus Research Group, Inc. The information contained in this research report is produced and copyrighted by Argus Research Co., and any unauthorized use, duplication, redistribution or disclosure is prohibited by law and can result in prosecution. The content of this report may be derived from Argus research reports, notes, or analyses. The opinions and information contained herein have been
Image of page 12
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern