By U.S. steel giant, Nucor, recently announced its fourth-quarter earnings guidance, which failed to meet expectations. Despite this, investors remain focused on what lies ahead.
According to Nucor, the projected earnings for the fourth quarter are between $2.75 and $2.85 per share. This indicates a decline from the previous quarters, with net earnings of $4.57 per diluted share in the third quarter of 2023, and $4.89 per diluted share in the 2022 fourth quarter.
Although the range falls short of expectations, it was not entirely unexpected by Wall Street analysts who anticipated a decrease to $3.19 per share for the fourth quarter.
At the start of the quarter, benchmark steel prices were below $800 per ton. However, they have since risen to approximately $1,100 per ton, with an average of around $800 during the third quarter.
While higher steel prices generally result in greater earnings, there can be a lag between spot prices and the pricing Nucor’s customers receive. Additionally, the price of scrap steel—an essential raw material for Nucor—also plays a significant role in the company’s financial performance.
In the third quarter, benchmark scrap steel prices averaged approximately $340 per ton. Currently, they have increased to roughly $360 per ton.
In premarket trading, Nucor’s stock experienced a 1% decline, while S&P 500 and Dow Jones Industrial Average futures saw a rise of about 0.3%.
Typically, investors evaluate Nucor’s stock based on steel price expectations and the margin compared to its raw materials cost. With recent stability in these factors, Nucor’s shares have remained relatively unchanged over the past three months. However, over the past year, the stock has achieved a gain of approximately 13% as the earnings estimates for 2024 increased from $10 to $12.60 per share.
Currently, Nucor’s stock is trading at about 13 times the estimated earnings for 2024, positioning it within the middle of its five-year range. Historically, steel stocks tend to have low earnings multiples when conditions are favorable, and higher multiples during challenging periods. This is characteristic of cyclical stocks.
Over the past five years, Nucor’s stock has traded as low as five times the estimated earnings for the following year and as high as 21 times.
-_By Al Root_-
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