Nucor Upgrading Its Mix, But Plenty Of Challenges Remain

It’s a good thing to be a darling; Nucor (NUE) continues to miss expectations and analysts continue to lower expectations, but the sell-side more or less has kept up a drumbeat of “surely it will get better from here”. Although 2019 EBITDA expectations are about 9% lower now for 2019 (and 7% lower for 2020) relative to the time of my last update, Nucor remains a consensus “Buy” call from the sell-side and the shares are up slightly from where they were at the time of that last article (albeit with a dip below $50 along the way).

With evidence accumulating to support the short-cycle slowdown thesis, I’m incrementally less positive on Nucor, and I think steel companies are going to have a harder time making these recent price hikes stick with sluggish auto demand, weakening non-residential activity, and growing weakness in a range of manufacturing and machinery markets. I do believe that Nucor is a best-in-class operator but I’m not sold on the risk-reward tradeoff at these prices; yes, the P/E ratio is in the single-digits, but that’s for a company that’s like to post negative EPS growth of around 6% over the next five years and negative 15% over the next three years.

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Nucor Upgrading Its Mix, But Plenty Of Challenges Remain