Nucor Stock: Is It a Good Buy?
Nucor is one of North America’s oldest and most diversified steel companies. The company’s share price reached an all-time high of $128.81 last year. Although the stock has dropped off a bit since then, as of Feb. 11 it’s trading at $118.56, which is up 117% compared to its lowest price over the last year and nearly 17% since the beginning of the year.
Do these gains mean that investors have missed the boat on Nucor stock, or is it a good buy right now? Here are some things to consider about the company and its potential future.
What Is Nucor?
Nucor is the most diversified North American steel manufacturing company. It was founded in 1905 by Ransom E. Olds and is headquartered in Charlotte, North Carolina. Today, Nucor has over 27,000 employees who work at more than 300 locations between Nucor itself and its family of brands.
The company manufactures high-quality steel and steel products for its customers. Nucor serves customers in various industries, including:
- Power generation and transmission
- Oil and gas
- Heavy equipment
The company prides itself on being the most sustainable and safest steel manufacturing company. President and Chief Executive Officer Leon J. Topalian said in the fourth-quarter 2021 earnings statement that 2021 was the second straight record-setting year in terms of safety. Nucor is a pioneer in recycling scrap metal and has built its business on environmentally sustainable principles and practices. In fact, according to the company’s 2020 Annual Report, the most recent published, it recycled nearly 17.8 million gross tons of scrap steel in that year alone.
How Does Nucor Make Money?
Nucor’s revenues come from three segments: steel mills, steel products and raw materials.
Nucor produces sheet steel, plate steel, structural steel, and bar steel in the steel mills segment. This steel mostly comes from scrap steel using electric arc furnaces. Nucor owns and operates 15 bar mills, five sheet mills, two structural mills and three plate mills across the U.S.
|Annual Mill Capacity|
|Bar mills||9+ million tons per year*|
|Sheet mills||12.1 million tons per year|
|Structural mills||3.25 million tons per year|
|Plate mills||2.8 million tons per year|
|*Three new bar mills will add 1.2 million tons of capacity when complete.|
Nucor produces steel tubing, electrical conduit, steel joists, fabricated concrete reinforcing steel, steel fasteners, and more in the steel products segment. The company owns and operates eight tubular facilities, nearly 70 fabrication facilities and 11 metal building facilities.
|Annual Steel Products Capacity|
|Tubular||1.37 million tons|
|Rebar fabrication||1.65 million tons|
|Cold finished bar and wire||1.07 million tons|
|Metal buildings||500,000 tons|
|Steel mesh||128,000 tons|
In the raw materials segment, Nucor produces direct reduced iron and both ferrous and nonferrous scrap metals. This segment also includes natural gas drilling operations. The investments in this segment aim to help the company’s steel-producing operations. Nucor operates 11 brokerage offices, 11 self-service used auto part facilities, two DRI plants and over 60 recycling centers across the United States.
|Annual Raw Materials Capacity|
|Direct reduced iron||4.5 million metric tons|
|Ferrous scrap||5 million tons|
Nucor’s revenues are diversified across these three segments, with sheet steel sales making up 33% of the total tons sold to customers. Notably, about 70% of its sheet steel sales in 2020, the most recent year for which data is available, came from non-cancellable contract agreements.
What Is Nucor Worth?
You can calculate Nucor’s net worth by subtracting its liabilities from its assets. According to the company’s fourth-quarter 2021 balance sheet, Nucor has $25.83 billion in total assets and $11.22 billion in total liabilities.
|Nucor’s Net Worth|
|Total assets||$25.83 billion|
|Total liabilities||$11.22 billion|
|Net worth||$14.61 billion|
Net worth is just one way of looking at a company’s value. Here are some key valuation measures to consider as well.
|Market cap||$32.224 billion|
|Price to sales||.98|
|Price to book value||2.36|
|Data is accurate as of Feb. 10, 2022.|
Is Nucor a Good Buy Right Now?
Nucor is the largest steel manufacturing company in North America and has a long track record of success. But does that mean now is a good time to buy Nucor stock? Here are two reasons why purchasing the stock might be a good idea and one reason to consider waiting.
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Nucor has consistently increased its base dividend for almost 50 years. This consistency is a sign of a strong company with solid financials. Investors like dividend stocks because they generate income along with potential share price gains.
Some investors also believe they are good defensive stocks, as they generally hold their value better when the market sees a correction. Nucor’s track record with dividends is a good reason to like the stock.
New Share Repurchase Program
On May 13, 2021, Nucor announced that the board of directors had approved an adjustment to their share repurchase program. This amended the $2 billion repurchase program the board had authorized in 2018, increasing the amount to $3 billion. In December 2021, the board terminated prior programs and authorized a new stock buyback program that allows Nucor to repurchase up to $4 billion in common stock. Nucor repurchased about 13.5 million shares in the fourth quarter of 2021. Buybacks and dividend payments together returned about $3.76 billion to Nucor shareholders last year.
When companies buy back shares of their stock, it reduces the total number of outstanding shares on the market. Generally, this raises the value of the stock and shows investors that management believes the current share price is a value compared to future growth potential.
Share buyback programs seem to be in vogue right now, with many companies announcing new buyback programs across the broader market. This trend could be a boost for the stock market as a whole, including companies like Nucor.
Steel Is a Cyclical Business
The steel business and other cyclical sectors like construction, travel and luxury goods usually perform well during economic expansion. However, during times of economic contraction, these types of companies often don’t perform as well. The COVID-19 pandemic in 2020 affected many industries, and steel was one of them. The challenges showed in its earnings: $1.30 per diluted share in the fourth quarter of 2020 compared to $7.97 for the first quarter of 2021. Nucor’s consolidated net sales increased 81% in 2021 compared to 2020, tons shipped to outside customers increased 11% and average sales per ton increased 64%. That said, the U.S. economy hasn’t fully recovered from the effects of the pandemic, and Nucor’s recent performance isn’t necessarily indicative of what you can expect in the future.
Many signs are positive for Nucor. Its base dividends have consistently increased for decades, and its new share repurchase suggests that Nucor expects its value to rise. In addition, Nucor is expanding. The company recently acquired a majority stake in California Steel Industries Inc., according to a Feb. 4 press release. But if you do choose to invest, remember that the strength of the steel industry will depend strongly on the state of the economy.
Will 2022 see new economic expansion? That remains to be seen. With shares off their all-time high but still trading well above pre-pandemic prices, investors do seem to be pricing in good news for Nucor. Time will tell.
Daria Uhlig contributed to the reporting for this article.
Data is accurate as of Feb. 11, 2022, unless otherwise noted, and subject to change.
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