Wednesday, November 09, 2011

Nucor (NUE) 2011 Review

Nucor Corp (NUE) is a manufacturer of steel and steel products (hot rolled steel shapes and cold finished bars, joists and deck) utilizing scrap, electric furnaces, continuous casters and automated rolling mills.

The company has grown profits and dividends at a 10-20% pace over the last 10 years earning a return on equity as high as 35%. While the recent recession slowed that growth over the short term, the longer term outlook for NUE remains bright because:

(1) a large percentage of sales are covered by long term contracts which stabilizes its production and includes surcharges allowing it to pass on higher raw material costs,

(2) management’s focus on innovative and cost efficient ways to produce steel,

(3) an aggressive acquisition program that concentrates on purchases that is accretive via new cost saving technologies or add-ons to its product line,

(4) a growing presence in the international markets

(5) utilization rates are starting to rise as the global economy slowing improves.


(1) over capacity in the steel industry is causing pricing pressures,

(2) low utilization rates has raised energy costs per ton,

(3) scrap steel prices are increasing,

(4) it is in a highly competitive industry.

Nucor is rated A by Value Line, carries a 36% debt to equity ratio and its stock yields over 4.4%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2001
NUE 4.4% 5% 50% 10*
IND 2.1 6 24 NA

Debt/Equity ROE EPS Down Since 2001 Net Margin Value Line Rating
NUE 36% 12% 3 5% A
IND 30 12 NA 5 NA

*NUE pays bonus dividends which distort the some dividend statistics.


Note: NUE stock has struggled since its March 2009 low. While it quickly surpassed the down trend off its June 2008 high (red line), it has never convincingly penetrated the November 2008 trading high (green line). Long term, the stock is in an up trend; the straight blue line is the lower boundary. The stock has been in an intermediate term trading range since 2008/2009 (purple lines). The wiggly blue line is on balance volume. The Dividend Growth Portfolio owns a full position, although it has traded the stock since the 2008 low (selling stock at $43 and recently buying it back in the $35-37 area). NUE is on the Dividend Growth Buy List; the lower boundary of its Sell Half Range is $125.