A detailed quantitative analysis by Nucor Corporation (NUE) is linked here. Below are some highlights from the analysis linked above:
Company description: Nucor Corporation is the largest minimill steel manufacturer in the United States. Nucor has one of the most diverse product lines of any steel manufacturer in America.
Fair value: When calculating the fair value, I take into account the differential fair value of the present value MMA along with these four fair value calculations. A detailed description can be found on page 2 of the linked PDF:
1. Avg. High yield price
2. 20-year DCF award
3. Avg. P / E price
4. Graham Number
NUE trades at a premium to all four of the above ratings. Including the NPV MMA differential, the stock is trading at a premium of 112.1% over the calculated fair value of $ 37.39. NUE doesn’t deserve any stars in this area.
Dividend analytical data: There are three possible stars and three key metrics in this section. A detailed description can be found on page 2 of the linked PDF:
1. Free cash flow payout
2. Debt to total capital
3. Key Metrics
4. Dividend growth rate
5th years Div. growth
6. Rolling 4 year old Div. > 15%
NUE earned a star for 2.) above in this section. The stock earned a star because its recent debt to total capital was less than 45%. The company has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 48 consecutive years.
Dividend Income vs. MMA: Why would you take the equity risk and invest in a dividend stock when you could get a better return on a much less risky money market account (MMA) or a government bond? This section compares that stock’s earning power to a High performance MMA. There are two points covered in this section. A detailed description can be found on page 2 of the linked PDF:
1. NPV MMA Diff.
2. years to> MMA
The negative NPV MMA Diff. means that on a dividend basis, the dividend income from an investment in NUE would be less than a similar amount invested in MMA, earning a 20 year average rate of 2.74%. If NUE increases its dividend to 0.5% per year, it will never match an MMA that gives an estimated 20-year average rate of 2.74%.
Peers: The company’s peer group includes: Commercial Metals Company (CMC) with a yield of 1.6%, Steel Dynamics Inc. (STLD) with a yield of 2.0% and United States Steel Corp. (X) with a yield of 0.2%.
Conclusion: NUE did not deserve any stars in Fair Value, earned one star in Dividend Analytical Data and did not deserve any stars for a total of one star in Dividend Income vs. MMA. This ranks NUE quantitatively as 1 star very weak Warehouse.
With my D4L-PreScreen.xls Model, I decided that the stock price would have to fall to $ 37.66 before NUE’s NPV MMA differential rose to the minimum of $ 500 that I’m looking for on a stock with 48 years of consecutive dividend increases. At that price, the stock would return 4.3%.
Resetting the D4L-PreScreen.xls The dividend growth rate model and solution required to generate the target MMA differential of $ 500 NPV. The calculated rate is 8.1%. This dividend growth rate is well above the 0.5% used in this analysis and therefore does not offer any margin of safety. NUE has one Risk assessment from 1.5, which it classifies as a low risk stock.
NUE is the largest US steel producer with one of the most modern and efficient operations in the country. The company has a diverse product mix. Mini mills such as those operated by NUE, for example, can quickly adapt the production level to demand. Financially, NUE has a very low debt to total capital ratio. The stock trades at a significant premium to my calculated fair value of $ 37.39, and the free cash flow payout is 43%. I will not consider a position until its rating improves.
Disclaimer: The material presented here is for informational purposes only. The above quantitative stock analysis, including star rating, is mechanically calculated and based on historical information. The analysis assumes that the share will develop in the future as it has in the past. In general, this is never true. Before buying or selling stocks they should do your own research and arrive at your own conclusion. Please see my disclaimer for more information.
Full disclosure: At the time of this writing, I did not have a position in NUE (0.0% of my dividend growth portfolio).
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Tags: NUE, CMC, STLD, X,.