Nucor (NUE), the largest US-based steel producer and the 12th largest in the world based on 2016 tonnage, is having a tepid 2018. Although the stock has gained 6.7% year-to-date (or YTD) based on March 2 closing prices, the returns lag some of the other US steel producers (XME). U.S. Steel (X) has gained 28.9%, while Steel Dynamics (STLD) is up 12.0% YTD. AK Steel (AKS) is trading on par with last year’s closing stock price.
It would not be prudent to compare Nucor’s price action to U.S. Steel. U.S. Steel has high operating leverage owing to its blast furnaces, and its earnings sensitivity to spot steel prices is higher as compared to Nucor. Steel Dynamics is Nucor’s closest US-based peer. However, Nucor has underperformed Steel Dynamics for the last couple of years. 2018 looks no different, and Nucor continues to underperform Steel Dynamics.
President Trump looks set to impose steep duties on steel imports. The Commerce Department under the Section 232 investigation gave three options to President Trump. The most stringent option called for a global tariff of 24%. President Trump is looking at a tariff of 25% on all steel imports and a 10% tariff on aluminum imports.
Meanwhile, despite a positive outcome from the Section 232 investigation, Nucor’s 2018 price action has lagged some of the other steel companies. In this article, we’ll explore whether Nucor could possibly catch up to other steel companies. Let’s begin by looking at Nucor’s valuation multiples in the next article.