Why Nucor Corporation didn't rally despite good results

1 2 3 4 5
Part 4
Why Nucor Corporation didn't rally despite good results PART 4 OF 5

Why the market didn’t react to Nucor’s good results

Market didn’t react to Nucor’s results

We have seen previously that Nucor (NUE) has been able to beat the street expectations as well as its own guidance in the second quarter results. This is normally associated with a reward from the stock markets. However, the market response was rather lukewarm to its results. The stock went up by only ~1%. In this section we’ll analyze the reasons why this happened.

Why the market didn&#8217;t react to Nucor’s good results

Interested in MT? Don't miss the next report.

Receive e-mail alerts for new research on MT

Success! You are now receiving e-mail alerts for new research. A temporary password for your new Market Realist account has been sent to your e-mail address.

Success! has been added to your Ticker Alerts.

Success! has been added to your Ticker Alerts. Subscriptions can be managed in your user profile.

Tough steel market conditions

While Nucor has been able to post good results for this quarter, the overall conditions in steel markets still remain challenging. The industry is marred by globally low capacity utilization as well as weak demand from key consumers like housing and infrastructure. To make matters worse, there’s a tsunami of cheap imports that has been hampering any recovery in the U.S. steel industry.

The sustainability of growth

Markets like growth numbers that are more sustainable rather than a one off event. Due to the adverse weather conditions earlier this year, a lot of Nucor’s competitors like U.S. steel Corp (X) faced disruptions in their production. As a result, Nucor was able to get a lot of customers from its competitors. While positive for the sales number this year, the ability of Nucor to retain these customers over a long period remains doubtful given the commodity structure of the products it manufactures.

Nucor’s current premium

Nucor enjoys a valuation premium compared to its peers. The previous chart shows the earnings valuation (or E) to earnings before interest, taxes, depreciation, and amortization (or EBITDA) multiple for Nucor with its peers. Historically, Nucor has been trading at higher valuations compared to its peers. This high valuation has already been priced by the markets, which limits the upside potential.

Some of the other steel companies and exchange-traded funds (or ETFs) are ArcelorMittal (MT), Reliance Steel & Aluminum (RS), and the SPDR S&P Metals and Mining ETF (XME).


Please select a profession that best describes you: