Surprisingly, Nucor's stock has experienced a significant decline over the past 5 years despite a significant downturn in the economy. Nucor is one of the better positioned steel companies, but at the same time, the upside may also be lacking.
Valuation: Nucor's trailing 5 year valuation metrics suggest that the stock is undervalued as all of the metrics are below their respective 5 year averages. Nucor's current P/B ratio is 1.9 and it has averaged 2.2 over the past 5 years with a high of 3.8 and low of 1.3. Nucor's current P/S ratio is 0.7 and it has averaged 0.9 over the past 5 years with a high of 1.3 and low of 0.5.
Price Target: The consensus price target for the analysts who follow Nucor is $48. That is upside of 6% from today's stock price of $45.4 and suggests that the stock is overvalued at these levels. This also suggests that the stock has limited upside and should be avoided at its current stock price.
Forward Valuation: Nucor is currently trading at about $45 a share with analysts expecting EPS of $4.03 next year, an earnings increase of 27% y/y, for a forward P/E ratio of 11.3. Taking a look at the company's publically traded comparisons will give us a better idea of the stock's relative valuation. AK Steel (NYSE:AKS) is currently trading at about $9 a share with analysts expecting EPS of $1.32 next year, an earnings increase of 74% y/y, for a forward P/E ratio of 6.5.
United States Steel (NYSE:X) is currently trading at about $31 a share with analysts expecting EPS of $3.88 next year, an earnings increase of 37% y/y, for a forward P/E ratio of 8. Commercial Metals (NYSE:CMC) is currently trading at about $15 a share with analysts expecting EPS of $1.74 next year, an earnings increase of 55% y/y, for a forward P/E ratio of 8.4. The mean forward P/E of Nucor's competitors is 7.7 which suggests that Nucor is overvalued relative to its publically traded competitors.
Earnings Estimates: Nucor has beat EPS estimates every time in the past 4 quarters. The company's EPS figures have come in between 4 cents and 14 cents from consensus estimates or about 7.5% to 38.9% from analyst estimates. The company has reported earnings that have differed from analyst estimates by a wide margin which suggests that the stock may experience upside from earnings surprises.
Top Stock Holders: The top two funds that own Nucor are American Funds Inc Fund of Amer A, which owns 13 million shares or 4.1% of the shares outstanding, and American Funds Washington Mutual A, which owns 8.2 million shares or 2.59% of the shares outstanding. The top two institutions that own Nucor are State Farm Mutual Automobile Ins CO, which owns 30.6 million shares or 9.66% of the shares outstanding, and Capital World Investors, which owns 31.5 million shares or 9.94% of the shares outstanding.
Price Action: Nucor is down 4.9% over the past year, underperforming the S&P 500, which is up 4.5%. Looking at the technicals, the stock is currently above its 50 day moving average, which sits at $42.43, and above its 200 day moving average, which sits at $37.60.
Conclusion: Nucor is a solid and stable steel company and is a great company. However, if you are extremely bullish on the steel sector, there are other stocks in the sector that have way more leverage and exposure to the steel market and may be a better vehicle to park your money.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.