Nucor is the largest steel producer and recycler in US. Company was founded in 1940 year, owns over 200 locations and employs around 23 600 people.

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As we can see company is more diversified than ArcelorMittal or other peer companies, but what is even more important is debt. Nucor leverage is significantly lower, which is crucial in tough steel market. Moreover company has a great history of cash flow generation.

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Situation on steel market is difficult – this is because demand from Chinese economy is slowing down and cost of production in countries with lower environmental protection are significantly lower. This is why US government is considering implementing some protection taxes. On the wave of such speculation share price of Nucor raised substantially from around low at $34 to around $46 now, which is +35%. Operating leverage is extremely strong in this business.

 

As it comes to financials (estimates):

Market cap ~ $14.7B

Net debt ~$2.5B

Payout ratio ~80%

Beta = 1.4

Dividend yield 3.2%

 

Estimated valuation ratios:

EV/EBITDA = 9.2

P/E = 26.3

 

Nucor is one of The Dividend Aristocrats paying increasing dividends since 1974 year. Currently dividend yield is around 3.2% – neutral from historical point of view but we should take into account that steel business is highly depressed now. In case of changing trends on steel prices company can significantly improve financial results. For now we can see that there were declining earnings over last years and share price is still below 2008 highs.

 

Drawdown risk analysis:

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Drawdown risk analysis shows that it might be a good time to buy shares. On the other hand we should notice that Nucor isn’t a growing business – this is why I can’t compare growing and non-growing company using long term drawdown analysis. Anyway, dividend yield is quite attractive, there are some plans to protect US steel business by government, valuation is not high as for cyclical with depressed financial results.

 

Summing up, Nucor is probably the best steel company in the world, but it is a wonderful company in difficult business. The case whether US steel market will be protected against cheap imported steel is like a flip of the coin – hard to say. In case of financial troubles of MT or others there might be some pressure on prices (to gain liquidity). This is why I think that investing in Nucor is risky, but this risk can give a great return. I think I will but shares at $40 – waiting for occasion. Waiting, waiting and portfolio is not growing…

 

Disclosure NUE – no position