Steel packages from Nucor Corp. was sold to Thompson Building Materials in Lomita, California, USA, on Thursday, August 30, 2012.
Patrick Fallon | Bloomberg | beautiful pictures
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Nucor (NUE), the charity the Trust is holding, fell sharply on Wednesday despite management’s release of sounding earnings guidance for the fourth quarter.
- Profit for the quarter is expected to be a new record for the company, with management guiding earnings per share between $7.65 and $7.75, up from 7.7. $28 in the third quarter.
- It’s rare to see the stock of a company that’s been around for 70 years drop 8.6% on news of record quarterly profits, but expectations still matter and consensus street estimates make the announcement as 7.95 dollars.
Looking out, Nucor made limited but encouraging comments on their outlook for the coming year. “As we close to the most profitable year in Nucor’s history, demand continues to grow strongly in most of the end markets we serve,” the company said in a press release. “We are confident that 2022 will be another strong profitable year for Nucor.”
We note that current consensus estimates on FactSet call for earnings per share to fall to $17.31 in 2022 from about $23.23 this year. We expect the steel market to recover next year more than the market expected, in part due to a recovery in auto production and new investments in oil and gas. If the estimates prove to be too low and are adjusted higher, Nucor’s stock price will follow in the same direction.
In addition to the steel forecast, we like how Nucor is still buying back tons of shares. The company said it repurchased approximately 13.5 million shares at an average price of $111.63 in the fourth quarter, and this level of activity will continue into next year after the Board of Directors approves a new program worth $111.63. $4 billion recently. By the way, the company just increased its quarterly cash dividend by 23%.
In other capital allocation news, we should point out that on Monday, Nucor reached agreements to acquire a majority ownership position in California Steel Industries. Nucor will pay $400 million for 50% of the business, valuing ownership at historical average EBITDA 6 times lower. The deal increases Nucor’s presence on the West Coast, and the consolidation is a way for Nucor to improve its capacity without adding additional capacity.
So what do we do to move today? We were hoping for a better number this quarter, but we don’t think the small size of the miss could justify today’s 8.6% drop in share price. Investors may be concerned that Nucor’s profits have peaked, but an environment of higher valuations over the longer term still makes Nucor a cheap stock by market standards.
After pre-booking some profits at around $120 at the end of November, we would buy Nucor off this drop if we didn’t already own a position for the Charity. But as noted earlier today, we are not ready to buy back the shares we sold lower as we are waiting for a level that would improve our average cost base of 101. .46 dollars.
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