Could Nucor Be a Relative Outperformer amid Steel Industry Turmoil?



Relative outperformer

Among the companies that we’re covering in this series, Nucor (NUE) has the most “hold” recommendations, with 61% of analysts polled by Bloomberg rating the company a “hold.” To put this in context, only ~40% of analysts rate ArcelorMittal (MT) and U.S. Steel (X) as a “hold.”

The graph above shows the recent analyst actions on Nucor. Based on the consensus estimates compiled by Bloomberg, Nucor carries a one-year price target of $54.03, which represents an 18% upside over its closing price on September 16.

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Nucor has been a laggard

Nucor has lagged behind other steelmakers during this year’s steel rally. U.S. Steel and AK Steel (AKS) have risen smartly since the beginning of 2016, and in general, more financially levered companies such as U.S. Steel and AKS have outperformed this year as investors added risk assets to their portfolios.

However, as steel market conditions have deteriorated over the past few weeks, investors seem to be exiting their positions in leveraged steelmakers.

Strong balance sheet

Nucor boasts a strong balance sheet and is the only US (VOO) steel company to carry an investment-grade (BND) credit rating. While its other competitors struggle to remain profitable in downturns, Nucor has a history of generating profits across the business cycle. Nucor also has a variable cost structure, which has helped the company remain profitable even under the current challenging operating environment.

As industry fundamentals deteriorate further, Nucor could be a relative outperformer in the steel space. But Steel Dynamics could also be a relative outperformer in the steel industry under the current market scenario. In the next part, we’ll see how are analysts are rating Steel Dynamics.


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