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Should You Invest in Nucor?

April 08, 2014 | About:
Rustic Nomad

Rustic Nomad

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Steelmaker Nucor (NUE) presents a good investment opportunity for investors to initiate a position as its shares have displayed some weakness of late. Nucor was able to report profitability in a sluggish steel market that is gradually working in its favor and the company expects a turnaround in the current fiscal year.

Good Performance

In spite of a challenging market and plant downtimes, Nucor has done well as its revenue grew 10% to $4.89 billion in the fourth quarter. Net income also jumped to $170.5 million from $136.9 million last year. Cost-cutting strategies and operational efficiencies drove Nucor’s performance.

The resurgence of the auto industry in the U.S. has helped Nucor as car sales in the U.S. grew to 15.6 million units in 2013, up 7.6% from a year ago. Car sales are projected to grow to 16 million units in fiscal 2014, and this will help Nucor’s top and bottom line performance as demand for steel will rise subsequently.

Nucor plans to make its operations more profitable. It has recently opened a facility in Louisiana that will produce direct reduced iron, supplementing the existing facility the company has at Trinidad. Nucor has lately witnessed better performance at its Louisiana plant compared to that of the facility at Trinidad, with better DRI quality.

Growth Ahead

The company can be benefit from procuring low-cost long term natural gas supply from this facility, thus leveraging the cost-structure. It will also improve its operating flexibility with a shorter supply chain for high quality iron users.

In addition to this, Nucor has seen substantial improvements after the successful implementation of its strategy to increase participation in higher margin special bar quality products. Expansion in this line will help Nucor achieve stronger productivity in energy, heavy equipments and various other markets. Nucor has also upgraded its mill in Nebraska, which will help it expand its SBQ market.

Nucor has installed a new quality assurance line that will provide engineered bars for various applications. Nucor’s Hertford facility has displayed positive signs of profitability due to investments in the heat treatment facility, vacuum tank degasser, and a normalizing line.

Nucor also expects to see better results from its Nucor-Yamato structural mill that is scheduled to start its production in the second half of 2014. This strategic investment will certainly help the company to gain market share and increase its profitability.

As the government imposes sanctions on imports, Nucor's prospects should get better in the long run as capacity utilization has remained low in the U.S market with foreign steel makers dumping their steel products due to gloomy pricing. The International Trade Commission has rolled out a five-year sunset review to keep in place existing anti-dumping and countervailing duty orders after seeing that imports have hurt U.S. steel companies. So, this is another reason why investors can expect Nucor to sustain its solid performance this year.

The company is expanding at Berkeley by investing $100 million for the enhancement of its caster and hot mill as per capacity expansion initiatives. This development will assist Nucor to improvise its product mix.

Conclusion

Nucor is one of the largest manufacturers of steel in the U.S. by volume. Its recent performance has been good and the future looks bright due to its strategies.


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