Goldman Sachs notes Nucor's (NYSE:NUE) stock price fell over 10% as it reported earnings that were ahead of expectations for 2Q but offered guidance that fell short of consensus expectations for 3Q. GSCO hase modestly lowered their 3Q and 4Q2008 EPS estimates to $1.95 and $1.90, from $2.17 and $1.92, respectively, mostly to reflect higher scrap costs and additional LIFO charges. Their new 2008 estimate comes down to $7.20 from $7.40, but they left unchanged 2009, 2010 and normalized estimates of $8.70, $9.85 and $8.85, respectively, which reflect volume growth and margin enhancement from valued added products.
GSCO thinks investors are over-reacting to fear of a weaker US economy and a potential global slowdown. Steel markets globally are in deficit, and there continues to be strong demand trends in BRIC and other developing nations that are straining global supply and more than offsetting demand weakness in US markets. And the weak US dollar is allowing increasing export growth for steelmakers at higher prices and margins. They see the steel cycle as very sustainable and look for continued strong earnings.
Following the correction, which they see as unwarranted, NUE sells at a P/E of 8.3X 2008 estimate (a 7.7% discount to a peer group that has also corrected sharply). Reiterates Buy and $98 target.
Notablecalls: Think we'll see a nice bounce in NUE in the next couple of days. With oil getting somewhat cheaper and NUE being a user of it, things continue to look OK for NUE.