On Tuesday, CFRA made an adjustment to the stock of steel producer Nucor Corporation (NYSE:NUE), reducing the 12-month price target from $131.00 to $129.00. The firm has kept a Sell rating on the shares, citing a cautious outlook on the steel industry.
The new price target is based on a valuation that assumes Nucor will trade at an enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA) multiple of 6.8 times the firm's 2025 EBITDA estimate. This multiple is higher than Nucor's three-year average forward EV/EBITDA of 6.3x but remains lower than the average of its peers, which stands at 7.7x.
CFRA's analysis indicates that steel producers are currently trading at a premium compared to the industry's historical average. The firm expressed concern that this premium may be based on overly optimistic expectations for steel prices and earnings to return to their peak levels experienced in 2021 and 2022.
The firm has also revised its earnings per share (EPS) estimates for Nucor, lowering the 2024 projection by $0.07 to $9.02 and the 2025 forecast by $1.17 to $10.05. This revision follows Nucor's third-quarter adjusted EPS of $1.49, which, despite being down from $4.57 in the same quarter of the previous year, was $0.08 higher than the consensus estimate.
The report highlighted that in the third quarter, Nucor saw a 1% year-over-year and sequential decline in total tons sold. Additionally, the average sales price per ton decreased by 6% quarter-over-quarter and was 15% lower compared to the previous year. Concerns were raised about the recent downward trends in domestic steel mill utilization rates, as well as potential challenges due to overcapacity and new capacity expected to come online in the near future.
In other recent news, Nucor Corporation reported significant developments in its financial performance. The steel manufacturer's third-quarter EBITDA reached $869 million, slightly above the consensus estimate of $863 million. The company also reported an adjusted earnings per share (EPS) of $1.49, topping their recently guided range of $1.30 to $1.40. However, Nucor's fourth-quarter guidance was less optimistic than anticipated, indicating potential challenges ahead. Jefferies maintained a Hold rating on Nucor, reflecting a position of watchfulness amid the company's mixed financial signals.
In addition, Nucor's third-quarter profit fell nearly 78% due to impairment charges on its steel products and raw materials segments. Despite this overall decline, the company's earnings of $1.49 per share slightly surpassed the average analyst estimate of $1.47 per share. Moreover, Nucor's revenue for the quarter decreased more than 15% to $7.44 billion, yet slightly exceeded the anticipated $7.28 billion. These are among the recent developments in the company's financial performance.
InvestingPro Insights
To complement CFRA's analysis, InvestingPro data provides additional context on Nucor's financial position. Despite the cautious outlook, Nucor's P/E ratio of 10.61 suggests the stock may be undervalued relative to earnings. This is further supported by an InvestingPro Tip indicating that Nucor's valuation implies a strong free cash flow yield.
While CFRA has lowered its EPS estimates, it's worth noting that Nucor has maintained dividend payments for 52 consecutive years, according to an InvestingPro Tip. This long-standing commitment to shareholder returns is complemented by management's aggressive share buyback program, potentially supporting the stock price.
However, aligning with CFRA's concerns, InvestingPro data shows a revenue decline of 12.72% over the last twelve months, with a more pronounced 15.18% drop in the most recent quarter. This trend supports the cautious stance on the steel industry's near-term prospects.
For investors seeking a more comprehensive analysis, InvestingPro offers 16 additional tips on Nucor, providing a deeper understanding of the company's financial health and market position.
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