Trading 1Q Earnings: Expecting Nucor to Beat

Next week, 1st quarter earnings releases pick up a little steam as more than 200 companies are set to tell us about their financial health. We have evaluated each company’s prospects of either beating or missing Wall Street’s expectations.

Nucor Corp (NUE) is one company that passed through our earnings filter as a possible upside surprise candidate. Nucor and its affiliates manufacturer steel products and is North America’s largest recycler.

In our weekly Sector Performance Review, we discussed a few reasons why we like steel stocks in the next 3-to-6 months.

• Demand is outstripping supply
• China needs to reduce steel exports by more than 25% to meet its internal demands
• Analysts are upping their forecast on steel prices and steel stocks

NUE is slated report their 1st quarter earnings on Thursday, April 17th. We expect Nucor to announce earnings that will beat investors’ and analysts’ expectations of $1.32 per share. We also believe NUE is likely to increase guidance for the next quarter and the remainder of 2008.

Nucor has a nice history of rallying after earnings are announced; a 5-10% move is not uncommon in the days after a positive earnings release. If we have made The Correct Call, option investors might want to consider the May 67.5 calls.

If NUE trades at $78 by May 1st, the May 67.5 call should be worth about $10.60; a gain of nearly 50% based on the contract’s April 10th closing price of $7.10.

Disclosure: None