On Jan 29, we reaffirmed our Neutral recommendation on
). While weak pricing and challenging steel market fundamentals
remain concerns, strength across automotive and energy markets
coupled with the company's key projects should support results
Nucor, on Jan 28, posted better-than-expected fourth-quarter 2013
results. Both revenues and adjusted earnings for the quarter beat
Zacks Consensus Estimates. Profit climbed year over year on the
back of higher shipments and a tax-related gain.
Moving ahead, earnings are expected to be flat sequentially in
the first quarter of 2014. While Nucor anticipates that no major
extended planned outages will take place at its steel mills and
expects to incur lesser start-up costs at its Louisiana direct
reduced iron (DRI) facility, it sees seasonally weaker
performance in its fabricated construction products businesses.
Nucor, a Zacks Rank #3 (Hold) stock, is seeing strength across
end markets such as heavy equipment, automotive, general
manufacturing and energy. Demand across these end-markets is
healthy, providing support to the company's top line.
Moreover, Nucor is progressing well with its key projects that
are expected to boost its earnings power over the long-term. The
Louisiana DRI facility, its largest project, came online in Dec
2013. The $750 million plant is expected to produce 2.5 million
tons of DRI annually when the operations are in full swing.
Nucor is also aggressively investing to secure a low-cost
supply of natural gas on a long-term basis to cover its expected
future steelmaking and DRI production needs. The company also has
an impressive record of returning cash to shareholders.
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However, the steel industry is still 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
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. Despite the U.S. steel industry's low capacity
utilization, imports continues to flow into the domestic market
due to foreign producers' overcapacity.
Other Stocks to Consider
Other companies in the steel industry worth considering are
Companhia Siderurgica Nacional
U.S. Steel Corp.
). All of them carry a Zacks Rank #1 (Strong Buy).