Nucor Trades at Premium Valuation: Buy, Sell or Hold the Stock?

Nucor Corporation NUE is currently trading at a forward price/earnings of 17.07X, a roughly 52.5% premium to the Zacks Steel Producers industry average of 11.19X, and higher than its five-year median.  Image Source: Zacks Investment ResearchThe NUE stock has seen a 25.8% decline in its share price over the past year. The downside reflects the choppiness in the steel space underpinned by the significant pullback in U.S. steel prices, which has led to a downward revision in NUE’s earnings estimates. NUE has underperformed the industry’s 19.6% decline and the S&P 500’s rise of 23.3%. Its major U.S. steel-making peers, Steel Dynamics, Inc. STLD, has gained 10.1%, while United States Steel Corporation X and Cleveland-Cliffs Inc. CLF have lost 16.5% and 42.2%, respectively, over the same period. Nucor’s One-year Price Performance Image Source: Zacks Investment ResearchTechnical indicators show that NUE has been trading below the 200-day simple moving average (SMA) since Nov. 7, 2024. The stock eclipsed its 50-day SMA on Feb. 3, 2025, indicating bullish momentum. Following a death crossover on June 20, 2024, the 50-day SMA continues to read lower than the 200-day SMA. NUE Stock Trades Above 50-Day SMA Image Source: Zacks Investment ResearchNUE’s Falling Earnings Estimates Reflect Negative Sentiment The Zacks Consensus Estimate for 2025 for NUE has been revised downward over the past 60 days. The consensus estimate for the first quarter of 2025 has also been revised down over the same time frame.The Zacks Consensus Estimate for 2025 earnings is currently pegged at $7.64, suggesting a year-over-year decline of roughly 14.2%. Earnings are also expected to decline roughly 66.8% in the first quarter.Find the latest earnings estimates and surprises on Zacks Earnings Calendar. Image Source: Zacks Investment ResearchThe market appears to have priced NUE’s shares higher despite its bleak earnings trajectory. NUE’s lofty valuation may not present a compelling value proposition at these levels. Let’s take a look at the stock’s fundamentals.Strategic Growth Investments to Aid Nucor StockNucor 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. 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.NUE’s Capital Allocation Backed by Robust Financial Health Nucor is maximizing its returns to shareholders by leveraging its strong balance sheet and cash flows. It ended 2024 with strong liquidity, including cash and cash equivalents and short-term investments of around $4.1 billion.  It also generated cash from operations of roughly $4 billion in 2024. NUE returned around $2.7 billion through dividends and share repurchases last year. It has returned around $12 billion to its shareholders through dividends and share repurchases since 2020, accounting for 57% of its net earnings. The company, in December 2024, raised its quarterly dividend to 55 cents per share from 54 cents. Nucor has increased its regular dividend for 52 straight years since it started paying dividends in 1973. It remains committed to return at least 40% of annual net earnings to shareholders.  NUE offers a dividend yield of 1.6% at the current stock price. Its payout ratio is 25% (a ratio below 60% is a good indicator that the dividend will be sustainable), with a five-year annualized dividend growth rate of 8.2%. Backed by strong financial health, the company's dividend is perceived to be safe and reliable.Weak Steel Prices Weigh on NUE’s ProspectsNucor is buffeted by the significant downward correction in steel prices, which has largely contributed to the downward slide in the stock. U.S. steel prices declined sharply in 2024 due to a slowdown in end-market demand and oversupply after a strong run in late 2023 that extended into early 2024.The benchmark hot-rolled coil (HRC) prices tumbled more than 40% last year from $1,200 per short ton at the start of 2024. The downside has been 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. The price slump led to lower profitability for steel producers. The recent steel mill price hikes and President Trump’s signing of executive orders imposing 25% tariffs on all steel and aluminum imports into the United States have led to an uptick in HRC prices lately. However, a significant recovery is not expected over the near term, given the weak manufacturing backdrop and a still-challenging demand environment. A slowdown in global automotive production curtailed steel consumption in this key end-market in 2024. The construction sector experienced a slowdown in the United States due to high interest rates, which dampened steel demand in this market. Elevated borrowing costs and inflation took a bite out of the residential construction industry. Manufacturing activities also weakened amid softening demand for goods and higher borrowing costs. Despite some green shoots of recovery in manufacturing and construction, a significant demand rebound for steel is unlikely over the short haul.Lower steel selling prices hurt Nucor’s performance in the fourth quarter of 2024. NUE expects a sequential decline in realized prices across its steel mills and steel products segments in the first quarter of 2025, suggesting continued pricing pressure.Final Thoughts: Hold NUE Stock for NowNucor’s actions to expand its production capabilities and grow its business through strategic acquisitions bode well. Its efforts to boost production capacity through several growth projects should drive profitability. Despite these positives, NUE remains exposed to the underlying challenges in the steel industry that have led to its underperformance. Lower steel prices, coupled with declining earnings estimates, cast a pall on the company's prospects. Its stretched valuation also might not offer an attractive entry point at this time. Holding onto this Zacks Rank #3 (Hold) stock will be prudent for investors who already own it.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Just Released: Zacks Top 10 Stocks for 2025Hurry – you can still get in early on our 10 top tickers for 2025. Handpicked by Zacks Director of Research Sheraz Mian, this portfolio has been stunningly and consistently successful. From inception in 2012 through November, 2024, the Zacks Top 10 Stocks gained +2,112.6%, more than QUADRUPLING the S&P 500’s +475.6%. Sheraz has combed through 4,400 companies covered by the Zacks Rank and handpicked the best 10 to buy and hold in 2025. You can still be among the first to see these just-released stocks with enormous potential. See New Top 10 Stocks >>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 Steel Dynamics, Inc. (STLD): Free Stock Analysis Report United States Steel Corporation (X): Free Stock Analysis Report Nucor Corporation (NUE): Free Stock Analysis Report Cleveland-Cliffs Inc. (CLF): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks