Long Products Should Drive A Good 2018 For Nucor

These are good days to be a steel company. Even with the negative impact of higher scrap costs and import competition, revenue and margins are better than they’ve been in some time. For Nucor (NUE), it’s not just about riding the cycle (although the cycle is important), as the company has been continually invested in value-added capacity and executing tuck-in acquisitions to broaden its portfolio. With relatively healthy industrial markets and the prospect of protection from imports, 2018 is looking pretty good for Nucor and peers/rivals like Steel Dynamics (STLD), Gerdau (GGB), and Commercial Metals (CMC).

Price/valuation is a hang-up for me. While an 8x multiple on my 2018 EBITDA estimate would offer some upside (about 5%), that’s about as high as I’d go for the company. There are certainly opportunities for Nucor to outperform in 2018 and drive a higher fair value by virtue of a higher EBITDA estimate, but this isn’t my favorite steel name right now and that’s not surprising as up-cycles tend to favor lesser operators and Nucor remains among the best-run companies in the industry.

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Long Products Should Drive A Good 2018 For Nucor

Investopedia: Harsco Could Be Troughing

These have been challenging times for industrial conglomerate Harsco (NYSE:HSC). Weak demand for commercial construction and weak funding for infrastructure projects has hurt the company's infrastructure business, while a weak market for European steelmakers has likewise hurt the mill services business. Calling a bottom in non-residential construction or steel is a fool's errand, but odds favor these markets getting better over the next year or two and a new CEO could reverse a disappointing record regarding cash flow generation and asset efficiency.

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http://stocks.investopedia.com/stock-analysis/2012/Harsco-Could-Be-Troughing-HSC-SMS-TMS-MT0627.aspx

Investopedia: Can Ternium Regain Its Good Name?

What a difference one deal can make. The management of Ternium (NYSE:TX) had been considered one of the best in the Latin American steel sector, and the company was generally well thought of with its mix of cost integration in Mexico and near-monopoly in Argentina. Recently, though, the company paid a huge premium to take a major position in a Brazilian steel company and analysts have put the company in the penalty box as a result.

Familiar Conditions in Core Markets  
The global slowdown in the steel market has not been helping Ternium sentiment lately. As Mexico's economy is so tied to the U.S., conditions in the U.S. seem to inevitably spill over into Mexico and this has been true for the steel market as well. Argentina, too, has seen some sequential slowing in shipments and pricing - a trend repeated broadly through the world.

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Investopedia: Vale Still All About China

In some respects, Brazilian iron giant Vale (NYSE:VALE) should be sitting pretty. After all, it controls huge iron ore reserves, has a pretty compelling cost structure and has successfully grown a non-ferrous business centered around nickel and copper.

On the other hand, there's just not enough demand from the Brazilian steel industry to change the fact that Vale rises and falls with Chinese demand. Making matters worse, the Brazilian government has not been shy about influencing (some might say "interfering") the company's internal operations. Although Vale's valuation is not really that extreme today, investors need to appreciate the risks that go with this name. (For more, see Earning Forecasts: A Primer.)

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Seeking Alpha: Can Much-Maligned Mechel Outperform?

Although the rally in steel stocks has cooled in February, investors are still generally optimistic on the outlook for domestic names like Steel Dynamics (STLD) and Nucor (NUE), as well as global plays like ArcelorMittal (MT). That enthusiasm has not extended out to Russia's Mechel (MTL) to the same degree, as analysts are concerned not only about the company's higher-cost steel operations, but also its over-leveraged balance sheet and its unimpressive history of organic growth.

Can Integration Pay Off?
As the largest producer of coking coal in Russia (with well over 20% share), and a large iron ore miner as well, Mechel is well-covered for its own steel needs, and it's the second-largest long steel maker in Russia (behind Evraz). Unfortunately, this level of internal integration hasn't necessarily always paid off for shareholders.

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Can Much-Maligned Mechel Outperform?

Seeking Alpha: If High Steel Prices Stick, U.S. Steel Has A Lot Further To Go

All you really need to know about whether U.S. Steel (X) stock will outperform this year is how strong steel prices will be. Simple, right? If only. Although steel prices have been heading higher in recent weeks and commentary from top mini-mills Nucor (NUE) and Steel Dynamics (STLD) has been constructive, there more than a few worries about the health of key markets like autos, construction, and energy.

A Tough Q4, But Who Cares?
By and large U.S. Steel had a disappointing quarter. Sales climbed 12% from last year, but dropped 5% from the third quarter. Shipment volume wasn't bad (especially in flat roll), but pricing was a little disappointing outside of the flat roll business. Worse, costs were quite a bit higher despite improved utilization and overall segment operating profit wasn't a profit at all. At the bottom line, U.S. Steel missed analyst expectations by a fairly significant amount.

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If High Steel Prices Stick, U.S. Steel Has A Lot Further To Go

Investopedia: Nucor's Rally Leaves Little On The Table

Since the title of this article largely hints at the conclusion, let me make it clear that I think Nucor (NYSE:NUE) is one of the best commodity companies in the world and maybe one of the best-run companies in the country. The question for 2012, then, is whether the market for steel products can develop even more favorably than a generally bullish chorus analysts already expect. 

2011 Ends on a Shrug  
Although Nucor's year-on-year comparisons for the fourth quarter look strong, whatever happened last year may as well have happened 100 years ago for all it matters to current market conditions. So, 25% revenue growth and 120% earnings before interest, taxes, depreciation and amortization (EBTIDA) growth is all well and good, but largely irrelevant to investors. (For related reading on EBITDA, see EBITDA: Challenging The Calculation.)

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http://stocks.investopedia.com/stock-analysis/2012/Nucors-Rally-Leaves-Little-On-The-Table-NUE-STLD-MT-AKS0130.aspx

Seeking Alpha: Can Steel Dynamics Keep Up Its Momentum

Although the last couple of quarters have been difficult ones for mini-mill operators Steel Dynamics (STLD) and Nucor (NUE), investors have actually been pretty enthusiastic on the stocks. Whether it's expectations of strength in markets like automobiles, energy, and construction or just a response to cyclical low valuations, Steel Dynamics is up more than 60% since early October lows. That's a big gain for non-owners to miss, but the question is how much is yet left to go.

A Surprisingly Strong End To The Year
Steel Dynamics warned the Street that numbers were too high back in December, but the company managed to do better than those revised expectations. Revenue fell 9% from the third quarter and operating income was cut by almost one-quarter, but the earnings per share came in at $0.14 - two cents above the high end of management's guidance range and three to four cents higher than most analysts'.


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Can Steel Dynamics Keep Up Its Momentum?

Investopedia: The Market May Have Already Given Steel Dynamics Its Due

I have made little secret of my admiration for Steel Dynamics (Nasdaq:STLD). I think it's one of the best-run steel companies in the world, and offers an excellent growth profile in an industry that seldom gets much credit for quality management or strategy. Unfortunately, I didn't follow my own advice to buy this stock about a quarter ago and now it looks like it may be too late. (For more, see Earning Forecasts: A Primer.)

Another Quarter, Another Warning  
One of the best signs that momentum is with a stock is that bad news doesn't really knock it off stride. To that end, Steel Dynamics warned the Street in December 2011 that the fourth quarter results weren't going to be as good as they hoped. As is often the case, what is true for Steel Dynamics is broadly true for Nucor (NYSE:NUE), and this larger mini-mill operator likewise announced a weaker fourth quarter would be coming.

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http://stocks.investopedia.com/stock-analysis/2012/The-Market-May-Have-Already-Given-Steel-Dynamics-Its-Due-STLD-NUE-X-MT0113.aspx

Seeking Alpha: With Worries ABout Global Growth, Consider Freeport-McMoRan

The numbers vary a bit depending on the timeframe used, as well as spot vs. futures prices, but the fact remains that the shares of Freeport-McMoRan (NYSE: FCX) more or less track the price of copper with a great deal of fidelity and consistency. While many analysts have tried to point out the organic growth potential of Freeport and argued that the quality of its asset base deserves better treatment, the reality is that the stock is a proxy for copper.

Looking out across 2012, though, that doesn't seem like such a bad thing. True, there are ample economic worries in all corners of the globe. It's also true that production costs are rising and companies are bringing on enough capacity that there may be a global surplus in 2013. All of this is already in the market, though, and the reality is that about the only way to make money in a stock like this is to buy when it's unpopular and there are explicit worries about copper prices. For instance, in just one month the average analyst EBITDA estimate for Freeport in 2012 has dropped by one-quarter.

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With Worries About Global Growth, Consider Freeport-McMoRan

Investopedia: Icahn Tilts At Commercial Metals

To give credit where due, Carl Icahn rolls with the punches and always seems to have at least a couple of ideas percolating on the back burner. After an ill-fated attempt to acquire Clorox (NYSE: CLX), Icahn (through Icahn Enterprises (NYSE: IEP)) is at it again, this time attempting to acquire mini-mill and recycling operator Commercial Metals (NYSE: CMC), in a cash deal. While this is a relatively rare ray of sunshine in the primary metals industry, investors shouldn't rush to assume this is the beginning of a new merger wave.

The Deal

Icahn has publicly offered $15 a share for Commercial Metals, an offer that totals about $1.73 billion and represents a 31% premium to Nov. 25, 2011's, close. That said, it's not an especially generous offer. Commercial Metals has been in a slump lately, but was trading above $15 as recently as May, despite what has been a bad operating environment for better-regarded mini-mill competitors, like Nucor (NYSE: NUE) and Steel Dynamics (Nasdaq: STLD).

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http://stocks.investopedia.com/stock-analysis/2011/Icahn-Tilts-At-Commercial-Metals-CMC-STLD-IEP-CLX-NUE-AA-MT-FCX1130.aspx

Investopedia: Still Waiting On Steel Dynamics

Once again, investors are being asked to look ahead to the future with Steel Dynamics (Nasdaq:STLD). Tepid construction activity and iffy auto sales have kept a lid on this very efficient American steel company, but investors write this one off at their own risk. While a roaring recovery across STLD's markets is not likely in the near-term, the current stock price does not seem to account for this company's competitive position nor its full cycle earnings potential.

Q3 - Not Good, But Better than Feared  
Like its larger rival Nucor (NYSE:NUE), Steel Dynamics warned investors earlier that this quarter was not going to be as strong as the original projections suggested. Perhaps counter-intuitively, the stocks in the steel space were actually fairly strong that week as investors seemed to be relieved that conditions were better than their worst-case fears.

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http://stocks.investopedia.com/stock-analysis/2011/Still-Waiting-On-Steel-Dynamics-STLD-X-MT-NUE-CLF-AA-UNP1023.aspx

Investopedia: Will The Street Believe In Steel Dynamics?

This has been a tough year for steel companies. Squeezed between rising costs and iffy demand, the sector has largely been treading water. With better than expected results for the second quarter, maybe the turn is at hand for Steel Dynamics (Nasdaq:STLD). Then again, considering a glut of sheet steel and the company's spot pricing exposure, the Street may be slow to fully climb on board this name. 

A Better Quarter ... Sort of  
There are two ways to think about Steel Dynamics' quarter - it was much worse than initially expected, but at least better than the company's pre-announced guidance. Revenue rose more than 27% this quarter, with tons shipped rising 15% and all steel products up a little more than 14%. Shipments were especially strong in categories like structural, rail and steel bar.


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Will The Street Believe In Steel Dynamics? (STLD, MT, NUE, CMC, GGB, ATI, BTU)

Investopedia: Peabody Tries Again To Get Macarthur Coal

Give credit where credit is due - Peabody Energy (NYSE:BTU) does not give up easily when management sees a valuable asset that could improve its business. In this case, the company is trying again to acquire Australian metallurgical coal miner Macarthur Coal (OTCBB:MACDY). While the price that Peabody is offering is a little high, it is not too out of line with recent deals, and the operating leverage that Peabody has should allow the company to make a decent return even at these levels. 


A New Bid for an Old Target
Peabody has been interested in Macarthur Coal and its 175 million tons of attributable coal reserves for some time now. About a year ago, Peabody bid A$15 a share for the company, but ultimately found rejection from the target's board (and its large shareholders).

Now Peabody is trying again, but this time it's bringing a buddy. ArcelorMittal (NYSE:MT) already owns about 16% of Macarthur and was previously not in favor of selling out to Peabody. Now Peabody wants the company to be a partner, and the companies have launched a joint 60/40 bid for the company with Peabody as the projected controlling partner.


The link below leads to the full piece:
http://stocks.investopedia.com/stock-analysis/2011/Peabody-Tries-Again-To-Get-Macarthur-Coal-BTU-MACDY-MT-PKX-XSRAY-VALE-TCK-WLT-ACI-PVR0712.aspx

Investopedia: The Vale Between Two Peaks

Whether it's the anticipated end of QE2, ongoing growth in emerging markets, the economic recovery in North America and parts of Europe, or the fact that hundreds of companies are furiously digging new holes around the world, there are a lot of crosscurrents in the commodity space. 


Although commodities have pulled back in early May, it seems early to call an absolute end to the secular rally. With that in mind, maybe Brazil's Vale (Nasdaq:VALE) is still worth a look for value-oriented investors who want some commodity exposure. (For more, see Investing In The Metals Markets.)


A Disappointing Start to the Year
The first quarter is virtually always the weakest for this huge iron ore and nickel producer, but this quarter was even weaker than analysts had in mind. All of that said, "weak" is a relative notion. Revenue was still almost double the year-ago level, while adjusted EBITDA climbed over 3.5 times from last year's first quarter. So although that EBITDA figure was about 10% below the consensus, clearly it is not as though Vale is scraping bottom. 



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Investopedia: Play Steel Dynamics For The Next Materials Story

Every commodity and resource boom is a little different, but it is not uncommon to see divergent trends between materials. Materials like copper and iron ore can have their runs only to be followed later by the likes of steel and aluminum. With steel prices starting to firm up, and industrial conditions staying strong, now might be a good time to consider the likes of Steel Dynamics (Nasdaq:STLD).


A Solid Open to the Year
Due in part to strong pricing, Steel Dynamics surpassed the average revenue estimate for the quarter. Investors should note, though, that there was a very wide range of published estimates ($1.1 billion to $2.2 billion). In any case, revenue rose nearly 30% from last year and almost 32% sequentially. Average selling prices rose 21% from the year-ago level, and more than 18% sequentially, while shipments rose about 10% on a sequential basis. (For more, see Steel Cycle Looks Good.)

The company's cost and profit performance was also stronger this time around. Scrap costs were higher, but operating efficiency handily surpassed that increase. Gross margin jumped more than a full point from last year, and nearly six full points from the fourth quarter. Operating margin improved even more - up more than 160 basis points from last year and more than tripling from the fourth quarter.


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http://stocks.investopedia.com/stock-analysis/2011/Play-Steel-Dynamics-For-The-Next-Materials-Story-STLD-NUE-AKS-PKX-CMC0420.aspx

Investopedia: Lincoln Electric: A Quality Niche Industrial

With a 42% rise in the stock over the past year and 140% since early 2009 lows, clearly there have been rewards for the nimble and patient with welding equipment maker Lincoln Electric (Nasdaq:LECO). Lucky for Lincoln Electric, though, welding is strongly tied to industrial activity, and the company seems to be looking at a prolonged multi-year recovery in business.   

A Solid End to a Rebound Year
Lincoln Electric surpassed analyst expectations for the fourth quarter, posting 22% revenue growth and surpassing the high-end analyst estimate by 7%. Those results are good enough in their own right; even better when considering the 9% sequential growth and the historical trend for the fourth quarter to be soft. Looking at the company's markets, North American sales jumped 25%, while South America was the laggard at 8% growth. Overall, the company saw volume increase 20% - a strong testament to the increased business activity and product demand.

Profitability was more of a mixed bag for the company. Gross margins shrank by nearly three full points as the company reversed a large LIFO credit to a small charge, but the company did recover a lot of this through an even bigger reduction in SG&A spending. All in all, adjusted operating income rose 26%, while adjusted net income increased 38%. 


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http://stocks.investopedia.com/stock-analysis/2011/Lincoln-Electric-A-Quality-Niche-Industrial-LECO-ITW-CAT-F-ABB0224.aspx.

Investopedia: ArcelorMittal And The Steel Catch-Up Trade

The financial news often seems to talk about commodities as though they all trade together. The reality, though, is altogether different. While it is true that producers of copper, aluminum, and steel all depend to some extent on a healthy global economy, there can be a great deal of inconsistency between the individual commodities. So while iron giant Vale (Nasdaq: VALE) and aluminum king Alcoa (NYSE:AA) have done well over the past year, Freeport McMoRan (NYSE:FCX) has far surpassed them while ArcelorMittal (NYSE:MT) has been quite the laggard. 

Maybe that begins to change in 2011, and maybe investors should freshen up their due diligence on the largest player in the steel business.

A Solid End to a Tough Year
Although 2010 was hardly a disaster for ArcelorMittal or the steel industry as a whole, the memory of the boom years of 2007 and 2008 are still fresh in many people's minds. With certain commodities like copper hitting all-time highs recently, patience has been a little harder to come by in a steel sector still suffering from a sluggish economic recovery in North America and Western Europe. (For more, see Steel Cycle Looks Good.)

Still, ArcelorMittal ended the year on a solid note. Revenue rose 19% from the year-ago level (and 5% sequentially) and topped $20 billion. EBITDA was down 14% from the third quarter, but still higher than the consensus expectation and this quarter's number was arguably cleaner (that is, there were fewer non-operating items influencing the number).

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Alpha Looks To Be The Big Dog In U.S. Met Coal

This weekend's announcement from Alpha Natural Resources (NYSE:ANR) that it reached an agreement to acquire Massey Energy (NYSE:MEE) not only ends months of speculation about Massey's future, but it also represents yet another tremor through the metallurgical coal world. With steel prices already on the rise, met coal trading at about twice the price of steam coal and relatively modest near-term supply coming online, it seems a safe bet that met coal pricing is going to be a popular topic this year.

Alpha's Deal
Alpha agreed to pay over $7 billion in cash and stock to acquire Massey. The deal is being structured as a mix of equity and cash, with Massey shareholders getting 1.025 shares of Alpha (and thereby owning about 46% of the combined company) and $10 in cash. That is not only a 21% premium to where Massey closed on Friday (and the stock has been strong since the summer of 2010), but a rather high multiple relative to normal historical coal stock metrics. (For more, see Coal Burns Bright Despite Pressures.)

Alpha may have felt that it needed to make an impressive bid for Massey in order to fend off potential rivals. Though unattributed rumors are hardly proof, it does not seem unreasonable that companies like Arch Coal (NYSE:ACI) or ArcelorMittal (NYSE:MT) may have been interested in Massey as well.

What Alpha Will Be
With this deal, Alpha acquires 2.9 billion tons in coal reserves, with 1.3 billion of those being the more valuable metallurgical coal. All told, the combined company will have more than 5 billion tons in coal reserves and will become a real player in the global met coal market. Though BHP Billiton (NYSE:BHP), Mitsubishi and Teck Resources (NYSE:TCK) will still have roughly 40% of the world met coal market, the new Alpha will crack into the double-digits in terms of share of the global seabourne market.


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http://stocks.investopedia.com/stock-analysis/2011/Alpha-Looks-To-Be-The-Big-Dog-In-U.S.-Met-Coal-ANR-MEE-ACI-MT-JRCC-PCX-TCK0201.aspx

2010 - A Year Of Only Modest Recovery In Steel

As much as people want to write about the "new economy" and the new rules of economic development, the fact remains that steel is a key component. When economies are strong, there is higher demand for steel in non-residential construction, automobiles and all manner of industrial and consumer goods. To that point, 2010 was a challenging year for steel companies and steel stocks as soft demand capped not only shipment volume but restrained companies from fully pushing on the impact of higher input prices. 

A Rare Laggard In Materials
In almost every other respect, 2010 was a great year for materials companies. While the steel sector still did relatively well (basically tracking the S&P 500), much of that came from a late rally after third quarter earnings and rising optimism about higher prices in 2011. Relative to gold, copper, coal and other industrial metals, steel was a laggard for the year as a whole.

It made relatively little difference whether a company was an integrated global steel producer or a mini-mill. World-leaders like Korea's POSCO (NYSE:PKX) and Europe's ArcelorMittal (NYSE:MT) both saw their stocks decline by double-digit percentages, while U.S. mini-mill operators Nucor (NYSE:NUE) and Steel Dynamics (Nasdaq:STLD) did a fair bit better on a relative basis. American integrated producers U.S. Steel (NYSE:X) and AK Steel (NYSE:AKS) had very mixed performance, as AK Steel's stock fared quite poorly and U.S. Steel did relatively well. (For more, see Is Now The Time To Invest In Steel?.)


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