On June 18, we downgraded steelmaker
) to Underperform following its lower-than-expected guidance for
second-quarter 2013. Our view takes into account weakness in the
company's sheet steel business and a still soft non-residential
ANGANG STEEL LT (ANGGY): Get Free Report
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NUCOR CORP (NUE): Free Stock Analysis Report
SHILOH INDS INC (SHLO): Get Free Report
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Why the Downgrade?
Nucor, on June 13, issued its guidance for the second quarter
which was below expectations. The company expects earnings to be
in the range of 25 cents to 30 cents per share, lower than 35
cents per share earned a year ago. Nucor sees sequentially lower
performance in its steel mills unit in the quarter with weakness
in sheet and structural steel. The company added that
non-residential construction markets are still lacking momentum.
Nucor's first quarter results, reported on April 18, were a mixed
bag with adjusted earnings beating the Zacks Consensus Estimate
while sales missing the same. Attributable gold production fell
11% in the quarter. Weaker gold and copper pricing affected the
Estimates for Nucor are on the downswing following the release of
the first quarter results. The Zacks Consensus Estimate for 2013
has gone down roughly 23% to $1.73 per share. The Zacks Consensus
Estimate for 2014 has also declined around 5% to $3.42.
Cause for Concern
Nucor has serious issues to contend with. The steel industry is
going through a difficult phase and market fundamentals remains
challenging in the U.S. There is not enough demand for steel
products due to persistent weakness in construction end markets,
resulting in excess supply. Contributing toward this inventory
glut are production ramp ups by domestic steel producers and
rapid growth in Chinese production.
Nucor, like other steel makers, is plagued by surging domestic
steel imports. Consumers in the U.S. are importing cheaper steel
from China, forcing domestic steel producers to sell at lower
prices. Moreover, the gloomy conditions in the Eurozone are
another area of concern for Nucor since it is the largest market
for total U.S. exports. All these factors are hurting Nucor's
Steel Stocks That Warrant a Look
While we prefer to stay away from Nucor, other companies in the
steel industry with favorable Zacks Rank are
Kobe Steel Ltd.
Shiloh Industries Inc.
Angang Steel Company Limited
). While both Kobe Steel and Shiloh Industries hold a Zacks Rank
#1 (Strong Buy), Angang Steel retains a Zacks Rank #2 (Buy).