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Will Nucor (NUE) Prove to be a Suitable Value Pick?
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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Nucor Corporation (NUE - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Nucor has a trailing twelve months PE ratio of 26.08. This level compares unfavorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.28.
If we focus on the long-term trend of the stock the current level puts Nucor’s current PE near its median over the past five years (which stands at 25.26). The current level is much below the highs experienced for the stock over the observed period.
Further, Nucor’s PE also compares unfavorably with the highly volatile Zacks classified Steel - Producers industry’s trailing twelve months PE ratio, which stands at 21.57. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers. However, the graph below also makes it amply clear that Nucor’s earnings and/or price movement were comparatively less volatile than the industry at large.
Further, we should also point out that Nucor has a forward PE ratio (price relative to this year’s earnings) of just 14.38 – much lower than the current level. So it is fair to say that a more value-oriented path may be ahead for Nucor stock in the near term. The falling forward PE multiple is a result of rising annual earnings estimates for Nucor. The bullish sentiment also reflects the fact that the company has provided an upbeat guidance for first-quarter 2017. It sees higher profits for the quarter on improved performance in its Steel Mills unit.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Nucor has a P/S ratio of about 1.20. This is higher than the Zacks categorized Steel – Producers industry average, which comes in at 0.86 right now.
Notably, NUE is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Nucor currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. Some of its other key metrics make this pretty clear. For example, the PEG ratio for Nucor is 1.20, a level that is lower than the industry average of 1.25. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though Nucor might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘C’ and a Momentum score of ‘B’. This gives NUE a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, as mentioned earlier, the company’s earnings estimates have been trending upwards lately. The current quarter has seen three estimates go higher in the past thirty days compared to none lower, while the full year estimate has seen four upward revisions and one downward revision in the same time period.
This has had a meaningful impact on the consensus estimate, as the current quarter consensus estimate has moved north by 48.7% in the past month, while the next year estimate has moved higher by 10.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Despite this positive trend, the stock has a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term.
Bottom Line
Despite boasting of a formidable industry rank (Top 9% out of more than 250 industries), a Zacks Rank #3 for the company somewhat dims the sparkle. Notably, over the past one year, the Zacks Steel – Producers industry has clearly outperformed the broader market, as you can see below:
Nevertheless, Nucor remains committed to expand its production capabilities and grow its business through strategic acquisitions. It is also seeing continued momentum in the automotive market. Thus, though the company might be bit overvalued a right now, fundamentals indicate that it could be a compelling pick for the long-term. So, value investors might want to wait for the price to correct downwards a bit first, before investing in this name.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
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Will Nucor (NUE) Prove to be a Suitable Value Pick?
Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?
One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Nucor Corporation (NUE - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:
PE Ratio
A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.
On this front, Nucor has a trailing twelve months PE ratio of 26.08. This level compares unfavorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.28.
If we focus on the long-term trend of the stock the current level puts Nucor’s current PE near its median over the past five years (which stands at 25.26). The current level is much below the highs experienced for the stock over the observed period.
Further, Nucor’s PE also compares unfavorably with the highly volatile Zacks classified Steel - Producers industry’s trailing twelve months PE ratio, which stands at 21.57. At the very least, this indicates that the stock is relatively overvalued right now, compared to its peers. However, the graph below also makes it amply clear that Nucor’s earnings and/or price movement were comparatively less volatile than the industry at large.
Further, we should also point out that Nucor has a forward PE ratio (price relative to this year’s earnings) of just 14.38 – much lower than the current level. So it is fair to say that a more value-oriented path may be ahead for Nucor stock in the near term. The falling forward PE multiple is a result of rising annual earnings estimates for Nucor. The bullish sentiment also reflects the fact that the company has provided an upbeat guidance for first-quarter 2017. It sees higher profits for the quarter on improved performance in its Steel Mills unit.
PS Ratio
Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.
Right now, Nucor has a P/S ratio of about 1.20. This is higher than the Zacks categorized Steel – Producers industry average, which comes in at 0.86 right now.
Notably, NUE is actually in the higher zone of its trading range in the time period per the P/S metric, which suggests that the company’s stock price has already appreciated to some degree, relative to its sales.
Broad Value Outlook
In aggregate, Nucor currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. Some of its other key metrics make this pretty clear. For example, the PEG ratio for Nucor is 1.20, a level that is lower than the industry average of 1.25. The PEG ratio is a modified PE ratio that takes into account the stock’s earnings growth rate.
What About the Stock Overall?
Though Nucor might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘C’ and a Momentum score of ‘B’. This gives NUE a Zacks VGM score—or its overarching fundamental grade—of ‘C’. (You can read more about the Zacks Style Scores here >>)
Meanwhile, as mentioned earlier, the company’s earnings estimates have been trending upwards lately. The current quarter has seen three estimates go higher in the past thirty days compared to none lower, while the full year estimate has seen four upward revisions and one downward revision in the same time period.
This has had a meaningful impact on the consensus estimate, as the current quarter consensus estimate has moved north by 48.7% in the past month, while the next year estimate has moved higher by 10.2%. You can see the consensus estimate trend and recent price action for the stock in the chart below:
Nucor Corporation Price and Consensus
Nucor Corporation Price and Consensus | Nucor Corporation Quote
Despite this positive trend, the stock has a Zacks Rank #3 (Hold), which indicates expectations of in-line performance from the company in the near term.
Bottom Line
Despite boasting of a formidable industry rank (Top 9% out of more than 250 industries), a Zacks Rank #3 for the company somewhat dims the sparkle. Notably, over the past one year, the Zacks Steel – Producers industry has clearly outperformed the broader market, as you can see below:
Nevertheless, Nucor remains committed to expand its production capabilities and grow its business through strategic acquisitions. It is also seeing continued momentum in the automotive market. Thus, though the company might be bit overvalued a right now, fundamentals indicate that it could be a compelling pick for the long-term. So, value investors might want to wait for the price to correct downwards a bit first, before investing in this name.
Zacks' Hidden Trades
While we share many recommendations and ideas with the public, certain moves are hidden from everyone but selected members of our portfolio services. Would you like to peek behind the curtain today and view them?
Starting now, for the next month, I invite you to follow all Zacks' private buys and sells in real time from value to momentum...from stocks under $10 to ETF to option movers...from insider trades to companies that are about to report positive earnings surprises (we've called them with 80%+ accuracy). You can even look inside portfolios so exclusive that they are normally closed to new investors.
Click here for Zacks' secret trade>>