Nucor Corporation NUE has agreed to buy an independent producer of hollow structural section ("HSS") steel tubing, Southland Tube, for $130 million. The purchase price represents roughly eight times the average EBITDA over 2011-2016.
Southland Tube has a facility spread over 40 acres in Birmingham, AL, which employs roughly 280 non-unionized workers. The facility's location suits the HSS end market well. The company has annual shipments of about 240,000 tons, giving it the third largest market share in HSS steel tubing. Notably, HSS is required in a wide range of structural and mechanical applications, including non-residential construction, infrastructure as well as heavy equipment end-use markets.
This proposed buyout by Nucor complements the company's recently completed acquisition of Independence Tube in HSS steel tubing. The acquisition of Independence Tube, which has the second largest market share in the HSS space, was completed on Nov 1, for $435 million. Nucor is aiming to gain importance in the market while providing an additional channel to market the company's sheet steel mills. In 2006, Nucor's total steel mill shipments to downstream businesses accounted for 8%, which the company expects to grow to about 20% after these acquisitions.
Shares of Nucor closed about 0.7% higher at $65.58 on Dec 6.
NUCOR CORP Price
NUCOR CORP Price | NUCOR CORP Quote
Nucor's earnings in third-quarter 2016 rose 18.9% year over year, supported by higher steel prices. However, the company's adjusted earnings of 88 cents per share missed the Zacks Consensus Estimate of 90 cents. Moreover, revenues of $4,290.2 million rose from the prior-year quarter but missed the Zacks Consensus Estimate.
Nucor saw improved performance in its Steel Mills segment in the third quarter compared to the previous quarter. The profitability of its sheet mills improved due to increased average selling prices. Although demand for cold-rolled and galvanized sheet products has been strong, market conditions for the company's plate and bar mills remained challenging due to high levels of imports. In the fourth quarter of 2016, Nucor expects earnings to decrease on a sequential comparison basis primarily due to lower margins in the steel mills segment, with the most significant impact expected on the sheet mills.
Nucor currently carries a Zacks Rank #3 (Hold).
Some better-ranked companies in the basic materials space include POSCO PKX , AK Steel Holding Corporation AKS and Grupo Simec S.A.B. de C.V. SIM .
POSCO has an expected long-term growth rate of 5%. The stock holds a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
AK Steel, with a Zacks Rank #2 (Buy), posted a positive earnings surprise of 61.54% in the last reported quarter.
Grupo Simec, with a Zacks Rank #2, saw its estimates for the current quarter increase by roughly 53% in the last 60 days.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report AK STEEL HLDG (AKS): Free Stock Analysis Report POSCO-ADR (PKX): Free Stock Analysis Report NUCOR CORP (NUE): Free Stock Analysis Report GRUPO SIMEC SA (SIM): Free Stock Analysis Report To read this article on Zacks.com click here.