Nucor Corporation NUE benefits from actions to expand its production capabilities and grow its business through strategic acquisitions amid headwinds from weaker steel prices.

NUE’s shares are down 19.2% year to date, compared with a 23.9% decline of its industry. The bearishness is partly due to the choppiness in the steel space as reflected by the significant retreat in U.S. steel prices due to a combination of demand slowdown and oversupply.

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Let’s find out why NUE stock is worth retaining at the moment.

Expansion Actions & Acquisitions Aid Nucor Stock

Nucor remains committed to boosting production capacity, which should drive profitable growth and strengthen its position as a low-cost producer. The company has already commissioned some of its growth projects with Gallatin and Brandenburg mills showing strong production and shipment performance. NUE is investing $6.5 billion in eight major growth projects through 2027. These include the Apple Grove, WV, sheet mill (the largest project), the Lexington, NC, rebar micro mill and the Pacific Northwest rebar micro mill.

The company has been focusing on growth through strategic acquisitions over the past several years and has spent $5.8 billion on acquisitions since 2020. The recent acquisition of Southwest Data Products expanded its growing portfolio of solutions for data center customers. The buyout of Rytec Corporation will also allow Nucor to further expand beyond core steelmaking businesses into related downstream businesses. Adding high-performance doors is expected to create cross-selling opportunities with other Nucor businesses and significantly expand its product portfolio serving the commercial space.

Solid Financial Health Supports NUE’s Capital Allocation

Nucor is maximizing returns to shareholders by leveraging its strong balance sheet and cash flows. It ended second-quarter 2024 with strong liquidity including cash and cash equivalents and short-term investments of around $5.4 billion.

NUE returned more than $1.7 billion through dividends and share repurchases in the first half of 2024. It has returned around $11.4 billion to shareholders through dividends and share repurchases since 2020. The company, in late 2023, raised its quarterly dividend by 6% to 54 cents per share. Nucor has increased its regular dividend for 51 straight years since it started paying dividends in 1973. It remains committed to return at least 40% of annual net earnings to shareholders.

Weaker Steel Prices Mar Prospects of NUE Stock

Nucor, like most U.S. steel producers, is hamstrung by the significant downward correction in steel prices this year, which has largely contributed to the downward slide in the stock. U.S. steel prices have seen a sharp decline this year due to a slowdown in end-market demand after a strong run in late 2023 that extended into early 2024.

The benchmark hot-rolled coil (HRC) prices have retreated since early 2024, with prices plummeting to below $800 per short ton in March 2024 from $1,200 per short ton at the start of the year. The downside was influenced by a concoction of factors, including a pullback in steel mill lead times, an oversupply of steel exacerbated by increased imports, reduced demand from key industries and economic uncertainties. Sluggish industrial production and construction activities also contributed to the decline. 

U.S. HRC prices continued their downward slide in the second quarter of 2024, further pressured by an influx of imports. The price slump led to lower profitability for U.S. steel producers in the quarter. While the recent steel mill price hikes have led to a modest uptick in HRC prices, a significant recovery is not expected over the near term given the weak manufacturing backdrop and demand weakness. Prices are currently hovering around the $700 per short ton level.

While demand in automotive remains healthy, the residential construction sector has experienced a slowdown in the United States due to high interest rates, dampening steel demand in this key end market. Elevated borrowing costs and inflation have taken a bite out of the residential construction industry. Manufacturing activities have also weakened amid softening demand for goods and higher borrowing costs.
 
Lower steel selling prices are expected to hurt Nucor’s performance in the third quarter of 2024. NUE expects the anticipated reduction in average selling prices across its steel mills and steel products segments to result in lower sequential earnings in the third quarter.

Nucor Corporation Stock Price and Consensus

Nucor Corporation price-consensus-chart | Nucor Corporation Quote

NUE’s Zacks Rank & Key Picks

NUE currently carries a Zacks Rank #3 (Hold).

Better-ranked stocks in the Basic Materials space are, Hawkins, Inc. HWKN, IAMGOLD Corporation IAG and Eldorado Gold Corporation EGO, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Hawkins’ current fiscal-year earnings is pegged at $4.14, indicating a rise of 15.3% from year-ago levels. The Zacks Consensus Estimate for HWKN’s current fiscal-year earnings has increased 12.8% in the past 60 days. The stock has rallied around 98% in the past year. 

The consensus estimate for IAMGOLD’s current-year earnings has increased by 46.4% in the past 60 days. IAG beat the consensus estimate in each of the last four quarters with the average surprise being 200%. Its shares have shot up roughly 124% in the past year.

The Zacks Consensus Estimate for Eldorado Gold’s current-year earnings is pegged at $1.35 per share, indicating a year-over-year rise of 136.8%. EGO beat the consensus estimate in each of the last four quarters, with the average earnings surprise being 430.3%. The company's shares have rallied roughly 83% in the past year.

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