Nucor Earnings Rise on Steel Industry Trends

After outperforming the SPDR fund for selected industrial sectors NYSEARCA: XLI by more than 15% in the last five months, shares of Nucor Co. NYSE: NUE they have now lagged the industry after reporting first-quarter 2024 earnings, arguably the most important earnings of the year as they set the tone for the stock.

While the quarterly results were less than stellar, analysts continue to see this stock as a leader that could outperform the market in the coming months. The industrial and manufacturing sector in the United States remains a focal point for traders and investors this year.

Other players in the industry, such as Steel Dynamics Inc. NASDAQ:STLDthey also experienced bearish price action after reporting earnings, with this dropping nearly 3% on results.

It’s a year of production

After more than a year of contraction, the ISM Manufacturing PMI kicked off its first month of expansion in March, following a breakout thesis advanced by analysts at Goldman Sachs. In its 2024 macroeconomic outlook report, the investment bank told Main Street to watch out for rising profits and activity in the sector.

So far it has been shown that the February PMI reported a 6.4% jump in export orders, supported by the belief of impending interest rate cuts from the Federal Reserve (Fed). The Fed is expected to initiate the proposed cuts by September 2024, according to data from the CME’s FedWatch tool.

Interest rate cuts could lower the value of the dollar in currency markets, making American exports, such as steel, more attractive. Foreign companies may also go after U.S. steelmakers – in fact, Japanese ones Nippon Steel Co. OTCMKTS: NISTF recently submitted a takeover bid for United States Steel Co. New York Stock Exchange:

Additionally, the Biden administration has taken steps to increase U.S. steel and aluminum production, spurring jobs and business activity in the sector. Now that the key macroeconomic trend has been set for the steel industry, here’s why Nucor’s earnings weren’t all that bad.

It’s a downtrend that markets want to buy

$172.76

-1.88 (-1.08%)

(As of 04/24/2024 ET)

52 week interval

$129.79

▼

$203.00

Dividend yield

1.25%

P/E ratio

10.16

Price target

$193.14

Nucor’s price-to-sales (P/S) ratio commands a 50% premium to the steel industry. Nucor’s willingness to pay 1.2x sales versus the industry average of 0.8x gives investors an indicator of future market sentiment. There must be a reason why markets would be willing to overpay for the company’s sales compared to its competitors, and the answer may lie in its financials.

In the first quarter earnings press release, investors will notice a shift from the year-over-year trend to the quarter-over-quarter trend. Sales fell 7% over the past year but increased 6% in the quarter. This makes sense after investors revisited periods of contraction in manufacturing PMI, justifying the surge in quarterly sales as the sector returned to expansion.

Steel prices are 17% lower than a year ago, although last month reflected a 7.8% rally in a sign of an industry on the downturn. Commodity-dependent stocks tend to move with the underlying commodity cycle, and most on Wall Street can agree that Nucor’s bottom is this time.

The company’s management agrees that the stock is in the cheaper range and is set to surprise the markets soon with a potential bullish trend. This can be demonstrated by the $1 billion set aside for share buybacks in the first quarter, which represents nearly 2.5% of the company’s market capitalization.

Wall Street’s vote

Raising their price targets to $240 per share, Citigroup analysts expect a net upside of 40% from today’s prices. The stock’s recent sell-off comes as investors focus on the 22.2% year-over-year decline in earnings per share (EPS), when they should instead be focusing on the 9.5% jump over the quarter.

Despite the negative sentiment surrounding these recent earnings, the bears have decided to leave this stock alone. Over the past month, short interest in Nucor shares has declined 4.3%, bringing the net share short percentage to 2%.

Shares of United States Steel are trading at just 73% of its 52-week high, even after rumors of a takeover, and it is arguably one of the largest steel exporters in the United States. On the other hand, Nucor stock is trading at 85% of its 52-week high. high of the week, giving investors the final bullish vote through price action.

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