Three factors that will drive Nucor’s profits

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Dec. 4 2020, Updated 10:52 a.m. ET

Factors that will drive Nucor’s profits

In the previous parts of this series, we analyzed the 3Q results of Nucor. It’s important for investors to know the financial performance of the companies in their portfolio. Investors should also examine what factors will drive the future earnings of a company. Stock markets value companies based on their future expected earnings. So what factors will drive Nucor’s profits in the coming quarters?

Strong steel demand in the U.S.

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Nucor operates in a cyclical industry. One of the key drivers for steel companies is the growth in economic activity. The demand for all steel companies like Nucor (NUE), AK Steel (AKS), U.S. Steel (X), and ArcelorMittal (MT) is dependent on economic growth. The U.S. economy has shown resilience in the past several quarters. Analysts expect steel demand in the U.S. to grow in excess of 5% this year.

The above chart shows the short range outlook from the World Steel Association. The organization expects global steel demand to grow by only 2% in 2014. Steel companies like ArcelorMittal, which have global operations, will be negatively impacted by this slowdown. ArcelorMittal gets almost half of its revenue from Europe, which makes the company especially vulnerable to a slowdown in Europe.

Factors that will drive Nucor’s earnings

The above factors impact all steel companies in the U.S. Now let’s look at some key factors that will specifically drive Nucor’s profit.

  • Integration of Gallatin steel
  • Cost improvements in direct-reduced iron plant
  • Acquisitions of assets, possibly in mining space

Let’s now analyze these factors in greater detail. Please be aware that currently Nucor is the top holding for the SPDR S&P Metals and Mining ETF (XME).

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