The basic materials stock Nucor Corporation (NUE) has so far outpaced its peers this year. The steel company stock has moved up by 5.10% year to date while most basic materials companies have returned roughly 3.6% on the average. Not only has NUE outperformed its peers this year but also the NYSE Composite Index. The composite has returned -12.14% in 2022 and the S&P 500 composite is also in the bear market territory.
While the stock does have a “Buy” rating, a threat remains from the fact that it has more to give in case the looming recession overhead forces a further downfall of equities. The stock is down only 36% from its all-time high while most others have given back much more.
Possible Trend Reversal
However, NUE has been suffering from too much selling pressure lately with losses extending to 25.51% in the past month. Moreover, in recent weeks, it has been seeing positive earnings revisions from analysts. Thus, being near the oversold territory and the positive revisions in its earnings estimates, the stock could most likely see a trend reversal soon.
Furthermore, NUE is near the record-high of its cycle, with the company expecting 2022 to be another record year as it belongs to a cyclical sector. With a depressed 2020 and an elevated 2021, 2022 was expected to be depressed once again, but the company’s increased investments, steel price surge, and demand due to the geopolitical instability are helping its eye for another record year. This means the cycle is about to restart after 2022. Hence, while the stock and company might be up for good gains this year, the next might not be so good.
As per the after-hours data on May 20, 2022, NUE was priced at $120.25 per share.
NUE Company Developments
The Charlotte-based company is a leading producer of structural steel, steel bars, steel joists, steel deck, and cols finished bars. Along with directly reduced iron. The company has been improving its business with acquisitions, helping it become the most cost-effective industry leader. Following the acquisition of Hannibal Industries for $370 million, it recently acquired Elite Storage Solutions for $75 million. The acquisitions have expanded its racking system solution and geographic reach. The warehouse and data centers are expected to boost demand for construction due to the online shopping trends.
To add to its end-use market expansion further down the supply chain, NUE has inked a deal with KKR to acquire C.H.I. Overhead Doors Inc. just last week. However, the $3 billion deal was deemed too high a price for a smaller company by investors.
In the last five years, the company has invested almost $9 billion in new projects to fuel its growth and help it raise the range of returns throughout its cycles. Bearing fruit, the investments have furthered its cycle high through to 2022.
Financial Overview
In its latest earnings report, the company not only surpassed its quarterly earnings and revenue but is expected to cross its previous record in the ongoing quarter.
For the first quarter of 2022, NUE posted net earnings of $2,095.6 million with $7.67 on a per-share basis. This rose exponentially from the comparable $942.4 million or $3.10 per share in Q1 2021. The quarterly earnings also came well above the consensus estimate of $7.35 per share.
The company’s net sales grew by 50% YOY to $10,493.3 million, which beat the consensus estimate of $10,290.1 million. A rally in sales prices was responsible for the YOY surge in net sales, but the sales grew by just 1% sequentially.
At the end of the period, the company strengthened its financial position by 51% YOY with cash and cash equivalents of $3,725.3 million. The long-term debt rose by 16% to $6,112.3 million.
Future Outlook of NUE
With soaring demand in end-use markets, the company expects Q2 2022 to be the most profitable quarter in its history, surpassing Q4, 2021 records. With the bullish trend ahead, NUE also sees 2022 to be another year of very strong earnings and cash flow.
For Q2 2022, earnings are pegged at $6.18 a share on revenues of $10.55 billion by analysts. The company is also anticipated to boast a cash flow growth of 326.4% this year while the cash flow growth over the past 3-5 years has been 38.7%.
Additionally, analysts are expecting earnings of over $28 per share for this year (2022) which is then estimated to go back down to below $10 in the next year (2023) as the cycle recedes from its highs.
Conclusion
NUE’s earnings estimate has risen by 34.1% in the past 30 days as analysts see the company making more profits this quarter and year. With these positive revisions on top of the stock nearing the end of the selling threshold and strong near-term guidance, NUE is surely up for great profits ahead. But threats like wider equities downfall with the possible recession and more margins to lose due to it outperforming its peers, exist.
Despite the near terms bullish rating, the cyclical company is expected to reach the high end soon and start going down in 2023. Hence, while the stock is good for the current year, 2023 won’t be the same.
