Nucor (NUE, Financial) is believed to be the sole North American steel producer having an investment-grade credit rating. Its robust balance sheet and solid cash flow generation throughout the complete economic cycle enables Nucor to go for strategic acquisitions with the right assets and at the right time.
Making the right moves
The performance of its steel product segments and steel mills improved significantly during third quarter. Nucor's third quarter performance in general highlights one of its major competitive strengths. Nucor is believed to be the most diversified steel producer and steel products manufacturer of North America.
At the end of the third quarter, Nucor’s cash and short-term investments amounted to $1.4 billion. Even after purchasing Gallatin, the quarter-end, short-term investments and cash remain much above its fixed minimum level of $500 million.
Nucor lately signed a joint agreement with Encana, its operational interest investment partner, to expand its drilling suspension till 2015 ending. This solid strategic relationship of Nucor with Encana offers both these partners with a win-win solution for employing capital in the present pricing environment of natural gas.
Combined, they keep the important option for resuming the drilling activities in an expanded pricing environment for natural gas where greater and smart returns are generated. Importantly, Nucor’s Louisiana DRI plant's projected gas usage in 2015 and 2016 is settled by generation from its existing wells coupled with recently secured financial hedges.
Valuation and conclusion
The trailing P/E and forward P/E ratios of 25.27 and 14.99 means that Nucor's earnings are expected to grow in the long run. Moreover, it is comparable to the industry’s average P/E of 15.26, going forward. The PEG ratio of 0.58, below 1, signifies healthy growth and better than the industry’s average of 0.74. The profit margin of 3.21% is very marginal. The revenue per share and diluted EPS of 65.69 and 2.10 respectively indicate good investor earnings.
The quarterly revenue growth and quarterly earnings growth of 15.40% and 66.30% respectively signifies impressive shareholder earnings growth. The current ratio of 3.15 illustrates the robustness of the company’s balance sheet. Finally, the investors are advised to invest into Nucor Corporation looking at the solid long-term growth prospects indicated by the CAGR for the next 5 years per annum of 39.69%, significantly above the industry’s average of 5.06% only and expect promising returns in a long run.
