We are retaining our Neutral recommendation on
) following its mixed first-quarter 2013 results. We remain on
the sidelines considering the lingering impact of the Eurozone
crisis and weakness in the company's sheet steel business.
Nucor's first quarter adjusted earnings beat the Zacks
Consensus Estimate while sales missed. Lower selling prices and
shipments led to a double-digit decline in the top line. The
company expects earnings to improve sequentially in the second
quarter, partly driven by improved performance in its downstream
Nucor, a Zacks Rank #3 (Hold) stock, has a diversified client
base and, as such, it is not highly dependent on the conditions
prevalent in a particular geography. In addition, the company's
cost structure is highly variable, giving it the flexibility of
adjusting its costs when required.
Nucor is seeing strength across end markets such as heavy
equipment, automotive, general manufacturing and energy. It is
progressing well with its key projects that are expected to boost
its earnings power over the long-term. Construction of Nucor's
2,500,000-ton direct reduced iron (DRI) facility in Louisiana,
its largest project, is currently underway and is expects it to
come online in third-quarter 2013.
However, 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
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
Other Stocks to Consider
Other companies in the steel industry with favorable Zacks
Gibraltar Industries Inc.
Shiloh Industries Inc.
). While Gibraltar and Shiloh Industries carry a Zacks Rank #1
(Strong Buy), Mechel holds a Zacks Rank #2 (Buy).
MECHEL OAO ADS (MTL): Free Stock Analysis
NUCOR CORP (NUE): Free Stock Analysis Report
GIBRALTAR INDUS (ROCK): Free Stock Analysis
SHILOH INDS INC (SHLO): Get Free Report
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