Nucor Corp (NUE, Financial) recently experienced a daily gain of 1.77%, contributing to a 4.79% gain over the past three months. With an Earnings Per Share (EPS) (EPS) of 21.65, investors may wonder if the stock is fairly valued. This article aims to answer that question by analyzing Nucor's financial performance, growth prospects, and the GF Value, a proprietary valuation model by GuruFocus. So, is Nucor (NUE) worth your investment? Let's find out.
Company Overview
Nucor Corp is a prominent player in the steel industry, manufacturing steel and steel products, including direct reduced iron for its steel mills. The company operates several international trading and sales companies that buy and sell steel and steel products. Nucor's operations are divided into three business segments: steel mills, steel products, and raw materials. The steel mills segment, which includes carbon and alloy steel in sheet, bars, structural and plate, steel trading businesses, rebar distribution businesses, and Nucor's equity method investments in NuMit and NJSM, generates the most revenue.
At a current price of $157.41 per share, Nucor has a market cap of $39.20 billion. Comparing this to the company's GF Value, an estimation of fair value, can provide valuable insights into the stock's intrinsic worth.
The GF Value Explained
The GF Value is a unique valuation model that estimates a stock's intrinsic value based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line on a stock's summary page provides an overview of the stock's fair value.
If a stock price is significantly above the GF Value Line, it is considered overvalued, indicating a potentially poor future return. Conversely, if a stock price is significantly below the GF Value Line, it is undervalued, suggesting a potentially higher future return.
Based on the GF Value calculation, Nucor (NUE, Financial) appears to be fairly valued. With a market cap of $39.20 billion and a current price of $157.41 per share, the long-term return of Nucor's stock is likely to align closely with the rate of its business growth.
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Financial Strength
Investing in companies with poor financial strength can pose a high risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before purchasing shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Nucor boasts a cash-to-debt ratio of 0.81, ranking better than 65.99% of 591 companies in the Steel industry. Overall, Nucor's financial strength is rated 8 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. A company with high profit margins is usually a safer investment than those with low profit margins. Nucor has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $37.50 billion and an Earnings Per Share (EPS) of $21.65. Its operating margin is 20.52%, which ranks better than 93.18% of 601 companies in the Steel industry. Overall, Nucor's profitability is ranked 9 out of 10, indicating strong profitability.
One of the most important factors in a company's valuation is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Nucor's average annual revenue growth is 28.7%, ranking better than 86.71% of 587 companies in the Steel industry. The 3-year average EBITDA growth is 70.9%, which ranks better than 89.22% of 510 companies in the Steel industry.
ROIC vs. WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) can provide valuable insights into its profitability. 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Nucor's ROIC was 25.1, while its WACC came in at 13.81.
Conclusion
Overall, Nucor (NUE, Financial) stock appears to be fairly valued. The company's strong financial condition and high profitability, coupled with its growth rate better than 89.22% of companies in the Steel industry, make it an attractive investment. For more detailed information on Nucor stock, you can check out its 30-Year Financials here.
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