Steel holds immense significance across diverse manufacturing industries. Its crucial role extends to the construction of essential infrastructure, encompassing projects like bridges, roads, buildings, and transportation systems.
Given the varied usage of steel, in this piece, I have discussed the fundamentals of two leading industry players, Nucor Corporation (NUE) and Steel Dynamics, Inc. (STLD), to determine which stock could be a better addition to your portfolio.
Although the steel industry experienced a significant setback during the pandemic, marked by temporary factory closures and a steep decline in demand, it is poised to maintain a favorable position. This is largely driven by the swift expansion of industrialization and urbanization, especially in developing nations.
As per the World Steel Association, there is a projected 1.8% rebound in steel demand for the current year, reaching 1,814.5 million metric tons (Mt). Looking toward 2024, it is anticipated that the upward trend in steel demand will persist at a rate of 1.9%, culminating in a total of 1,849.1 million metric tons.
Furthermore, factors such as the increasing utilization of steel in military and aerospace applications, growing demand for electrical appliances, the expanding role of steel in shipbuilding, and the rising adoption of consumer goods contribute to the steel market's upward trajectory.
In 2023, the global steel market reached a size of $942.30 billion and is further projected to hit $1.28 trillion by 2032, growing at a CAGR of 3.3% from 2024 to 2032.
Given the industry’s favorable outlook, NUE and STLD should benefit from them. However, NUE appears to have outperformed STLD in terms of price performance by surging 23.8% year-to-date compared to STLD’s 17.1% year-to-date gains.
In addition, over the past month, NUE’s shares surged 7.8% to close the last trading session at $163.22. Meanwhile, STLD’s shares gained 3.8% during the same period to close the last trading session at $114.41.
However, to find out which stock is the better pick, let us dive deeper into the fundamentals of the featured Steel stocks.
Recent Developments
On November 17, NUE announced that its Board of Directors had approved a $280 million investment for the modernization of its steel plate mill in Tuscaloosa, Alabama. This strategic investment aims to enhance the capabilities of Nucor Steel Tuscaloosa, allowing it to better serve key market segments aligned with the broader Plate Mill Group strategy.
Conversely, On November 3, STLD declared a quarterly dividend of $0.44 per common share, payable to its shareholders on December 31, 2023. The company’s annual dividend of $1.62 translates to a 1.49% yield on the prevailing prices, while its four-year average dividend yield is 2.07%.
Recent Financial Results
NUE’s net sales for the fiscal third quarter (ended September 30, 2023) amounted to $8.78 billion. During the same period, the company’s attributable net earnings came in at $1.14 billion and $4.57 per share, respectively. Also, its cash and cash equivalents stood at $3.15 billion, up 36.8% compared to $4.28 billion as of December 31, 2022.
On the contrary, for the fiscal third quarter, which ended on September 30, 2023, STLD’s net sales amounted to $4.59 billion. However, the company’s net income and EPS came in at $579.78 million and $3.47, down 36.9% and 31% from the prior-year quarter, respectively. Also, its operating income declined 39.8% year-over-year to $733.55 million.
Past and Expected Financial Performance
NUE’s net income and EPS have grown at CAGRs of 126.4% and 140.8% over the past three years, respectively. Street expects NUE’s revenue and EPS for the fiscal fourth quarter (ending December 2023) to come in at $7.41 billion and $3.13, respectively.
Conversely, STLD’s net income and EPS have improved at CAGRs of 76.5% and 89.9% over the past three years, respectively. Analysts predict STLD’s revenue and EPS for the fourth quarter (ending December 2023) to decline 16.8% and 45.3% year-over-year to $4.02 billion and $2.39, respectively.
Profitability
NUE’s trailing-12-month levered FCF margin of 13.98% is higher than STLD’s trailing-12-month levered FCF margin of 8.50%. Additionally, NUE’s trailing-12-month cash per share of $23.82 is higher than STLD’s trailing-12-month cash per share of $10.80. Furthermore, NUE’s trailing-12-month EBITDA margin of 22.42% is higher than STLD’s trailing-12-month EBITDA margin of 19.70%.
Thus, NUE is more profitable.
Valuation
In terms of forward Price/Book ratio, STLD’s 2.11x is 11.6% higher than NUE’s 1.89x. Meanwhile, STLD’s forward EV/EBIT multiple of 6.02x is 8.1% lower than NUE’s 6.55x.
POWR Ratings
NUE has an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. Conversely, STLD has an overall rating of C, translating to Neutral. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. NUE’s A grade for Quality is justified by its robust profitability compared to the industry norms. NUE’s trailing-12-month net income margin of 13.98% is 134.6% higher than the 5.96% industry average. Also, its trailing-12-month levered FCF margin of 13.43% is 226.9% higher than the industry average of 4.11%.
On the other hand, STLD’s B grade for Quality is justified by its sound profitability metrics. STLD’s trailing-12-month net income margin of 13.73% is 130.3% higher than the 5.96% industry average. Furthermore, its trailing-12-month levered FCF margin of 8.50% is 106.9% higher than the industry average of 4.11%.
Among the 32 stocks in the A-rated Steel industry, NUE is ranked #12, while STLD is ranked #21.
Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, Stability, and Sentiment. Click here to view NUE ratings. Get all STLD ratings here.
The Winner
While both NUE and STLD should benefit from the industry prospects, NUE emerges as a more promising investment option backed by its financial stability, higher growth trajectory in recent years, and robust profitability, particularly when compared with STLD's comparatively lower growth rates over the past years and lower profitability.
Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Steel industry here.
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NUE shares were trading at $162.56 per share on Friday afternoon, down $0.66 (-0.40%). Year-to-date, NUE has gained 24.55%, versus a 21.36% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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