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Nucor versus Steel Dynamics: Which Is More Expensive?

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EV-to-EBITDA ratio

Along with the PB (price-to-book value) ratio and the PS (price-to-sales) ratio, analysts also look at a companies’ valuations based on profitability. There can be several ways to measure a company’s profitability, but for our purposes, we’ll do a comparative analysis of steel companies’ forward EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) ratio.

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Comparative analysis

AK Steel (AKS) is trading at 7.17x its 2017 expected EBITDA and at 5.85x its consensus 2018 EBITDA. U.S. Steel (X) has a forward EV-to-EBITDA multiple of 5.5x based on its 2017 expected earnings and at 4.67x based on its 2018 consensus EBITDA. ArcelorMittal, the world’s largest steel company, is trading at 5.23x based on its 2017 consensus EBITDA and at 5.27x based on its expected 2018 EBITDA.

Nucor (NUE) is valued at 6.98x based on its 2017 consensus EBITDA and at 6.34x based on its 2018 consensus EBITDA. Steel Dynamics’ (STLD) valuation multiples are lower than Nucor’s. STLD stock is trading at 6.46x based on its 2017 consensus EBITDA and at 6.06x based on its expected 2018 EBITDA.

Premiums

It’s worth noting that Nucor has historically traded at a premium to the broader steel space (XME). The company’s sound financial position is among the key drivers of its premium over other steel stocks. To be sure, Nucor is the only North American steel company to carry an investment-grade credit rating.

However, Nucor’s price action has lagged behind Steel Dynamics’ price for the past few years. Steel Dynamics also has a healthy balance sheet and could be a strong contender for an investment-grade credit rating—if steel market conditions show stability.

In the next part, we’ll look at steel companies’ PE (price-to-earnings) ratios.

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