Nucor: Capital Expenditures Plan, M&A Efforts, And Trading Cheaply

Core Viewpoint - Nucor Corporation is pursuing an expansionary strategy through acquisitions and capital expenditures, despite a bearish outlook for 2024 and declining average sales prices per ton sold. The company is considered undervalued, with significant upside potential in its stock price [2][3][26]. Company Overview - Nucor Corporation, established in 1958, is a major manufacturer of steel and steel products, and is recognized as North America's largest recycler, recycling approximately 18.4 million gross tons of scrap steel in 2023 [3]. Financial Performance - The company reported a 15% decrease in net sales for Q2 2024 compared to Q2 2023, with the average sales price per ton dropping 11% from $1,446 to $1,284. Total tons shipped decreased by 5% to approximately 6,289,000 tons [22]. - The steel mills segment backlog was approximately $3.27 billion in December 2023, up from $2.33 billion in December 2022. The backlog for the steel products segment was about $4.97 billion in December 2023 [6][12]. Acquisitions and Growth Strategy - Recent acquisitions, including C.H.I. for $3 billion, Cornerstone Building Brands' insulated metal panels business for $1 billion, and Hannibal for $370 million, are expected to enhance capacity and free cash flow potential [7][11]. - The company’s expansionary strategy aims to advance capabilities and create value, with a focus on growing core operations and pursuing inorganic growth through acquisitions [12][26]. Stock Repurchase Program - Nucor approved a $4 billion stock repurchase program in 2023, purchasing shares at an average price of $177, which is lower than the current stock price, indicating that the shares are considered undervalued [8][9]. Future Cash Flow Expectations - Free cash flow (FCF) is projected to grow from $3.8 billion in 2025 to $5.017 billion in 2031, supported by backlog growth and capacity expansion [12][14]. - The company’s enterprise value is estimated at $51 billion, with a fair price target of around $209 per share, suggesting significant upside potential compared to current trading levels [13][16]. Market Position and Valuation - Nucor's price-to-earnings (P/E) ratios are significantly lower than sector medians, indicating that the stock is undervalued relative to peers [16][20]. - The company’s diversified customer base mitigates risks associated with reliance on a few clients, allowing for better pricing power [5].