As of July 25, 2023, the stock price of Nucor Corp (NUE, Financial) has seen a 4.01% gain, bringing the price to $173.34. With a GF Value of $141.46, GuruFocus's unique valuation method suggests that Nucor (NUE) is modestly overvalued. The company has a market cap of $43.5 billion, and its Earnings Per Share (EPS) stand at $25.51. Before delving into a detailed analysis of Nucor's value, let's take a brief look at the company's operations and history.
Nucor Corp (NUE, Financial) is a leading manufacturer of steel and steel products, with international trading and sales companies that buy and sell steel and steel products manufactured by the company and others. The company's operations span steel mills, steel products, and raw materials, with the steel mills segment being the primary revenue driver. Nucor's portfolio includes carbon and alloy steel in sheet, bars, structural and plate; steel trading businesses; rebar distribution businesses; and equity method investments in NuMit and NJSM.
GF Value of Nucor (NUE, Financial)
The GF Value of a stock is a unique indicator of a stock's intrinsic worth, calculated based on historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and estimates of future business performance. If the stock price is significantly above the GF Value Line, the stock may be overvalued, and future returns may be poor. Conversely, if the stock price is significantly below the GF Value Line, the stock may be undervalued, and future returns may be higher. Given Nucor's current price of $173.34 per share, it appears to be modestly overvalued.
Given this valuation, the long-term return of Nucor's stock is likely to be lower than its business growth. The GF Value chart of Nucor provides a visual representation of this valuation.
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Nucor's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, investors must carefully review a company’s financial strength before deciding whether to buy shares. Nucor has a cash-to-debt ratio of 0.69, which ranks better than 64.42% of companies in the Steel industry. Based on this, GuruFocus ranks Nucor’s financial strength as 8 out of 10, indicating a strong balance sheet.
Profitability of Nucor
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Nucor has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $39.7 billion and Earnings Per Share (EPS) of $25.51. Its operating margin is 23.11%, which ranks better than 93.9% of companies in the Steel industry. Overall, GuruFocus ranks the profitability of Nucor at 9 out of 10, indicating strong profitability.
Growth of Nucor
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Nucor is 28.7%, which ranks better than 86.7% of companies in the Steel industry. The 3-year average EBITDA growth rate is 70.9%, which ranks better than 89.88% of companies in the Steel industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Nucor’s ROIC is 31, and its cost of capital is 12.98.
Conclusion
Overall, Nucor (NUE, Financial) stock is estimated to be modestly overvalued. The company's financial condition is strong and its profitability is strong. Its growth ranks better than 89.88% of companies in the Steel industry. To learn more about Nucor stock, you can check out its 30-Year Financials here.
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