What occurred
Buyers in metal large Nucor ( NUE -8.28% ) had an awesome day on Thursday, with the inventory exploding as a lot as 11% greater earlier than succumbing to promoting stress on a pink day for the markets, and ending with only a 3.7% acquire.
At this time, the promoting continues. Certainly, with its 6.5% loss as of 11:50 a.m. ET this morning, Nucor inventory has been dragged down under the place it traded earlier than reporting its earnings beat yesterday. Is that honest?
Sizzling rolled metal. Picture supply: Getty Photographs.
So what
Nucor beat earnings yesterday. Analysts forecast the corporate would earn solely $7.30 per share in its fiscal first quarter, but it surely truly earned $7.67. What’s extra, administration predicted that the upcoming second quarter would be the most worthwhile quarter in its historical past, buoyed by sturdy demand for metal, excessive costs within the firm’s uncooked supplies division, and elevated profitability at its sheet and plate mills.
As my Motley Idiot colleague Reuben Brewer identified yesterday, Nucor’s gross sales rose just one% sequentially within the first quarter on barely decrease metal costs. Mixed with the market as an entire promoting off, this may increasingly have been sufficient to present traders second ideas about eager to personal Nucor at present. And but, if not up a lot sequentially, income was nonetheless up 50% yr over yr.
Now what
Seen in that context, the comparatively weaker progress quarter-to-quarter because the finish of final yr would not appear to be a superb cause to out of the blue flip round and begin promoting Nucor inventory — actually not when it is promoting for lower than 6 instances earnings, and nonetheless paying a 1.2% dividend yield.
Admittedly, Nucor is a cyclical firm, and with earnings pegged for greater than $28 per share this yr (in line with analysts polled by S&P International Market Intelligence), and forecast to drop again down under $10 subsequent yr (additionally in line with analysts), Nucor might be nearer to the highest of its earnings cycle than to the underside proper now.
However with a lot of the worldwide metal business basically taken off-line by the struggle in Ukraine, and little prospect for the lifting of sanctions on Russia within the close to time period, I think Nucor’s traditionally excessive earnings may final a bit longer than many traders count on — and I would not guess on that large drop in 2023 truly taking place as forecast.
I consider the parents shopping for Nucor inventory have a greater argument than the folks promoting Nucor inventory at present.
This text represents the opinion of the author, who could disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis – even one in all our personal – helps us all assume critically about investing and make choices that assist us change into smarter, happier, and richer.
