Long Duration Infrastructure Projects And New Mill Capacity Will Support Stronger Future Earnings Power

Catalysts

About Nucor

Nucor produces steel and steel products across mills, downstream fabrication and raw materials operations in North America.

What are the underlying business or industry changes driving this perspective?

• The ramp up of the West Virginia sheet mill, which is designed to supply advanced, low emissions sheet steel and expand Nucor's presence in large Midwest and Northeast auto and consumer durables markets, is set to add incremental volumes and support revenue growth and earnings power as capacity utilization rises.
• New and expanded coating and finishing lines, including the second galvanizing line in South Carolina and the Crawfordsville galvanizing and paint lines, are expected to shift mix toward higher value sheet products for automotive customers, which can support average selling prices and net margins.
• Growth in towers and structures capacity, with new facilities in Indiana and Utah and the ramping Alabama plant, positions Nucor to benefit from long term investment in power transmission, renewable projects and large infrastructure, which can support shipments, EBITDA and cash generation from the Steel Products segment.
• Exposure to long duration projects such as data centers, LNG terminals, pipelines, border fence construction and nonresidential infrastructure, combined with record or near record backlogs in structurals and other product lines, points to multiyear demand visibility that can support revenue stability and utilization across mills.
• Reinforced trade enforcement, including Section 232 tariffs and tighter treatment of derivative products that has coincided with a finished steel import share near 15%, is contributing to a more balanced supply setting for U.S. producers, which can support domestic pricing, metal spreads and segment earnings.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on Nucor compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Nucor's revenue will grow by 5.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 6.8% today to 9.9% in 3 years time.
• The bullish analysts expect earnings to reach $4.0 billion (and earnings per share of $17.86) by about April 2029, up from $2.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $3.3 billion.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 17.8x on those 2029 earnings, down from 22.1x today. This future PE is lower than the current PE for the US Metals and Mining industry at 22.1x.
• The bullish analysts expect the number of shares outstanding to decline by 0.8% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.82%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Large capacity additions such as the West Virginia sheet mill and new towers and structures plants require multi year commissioning and ramp up. If market demand is weaker than management expects or if qualification with key automotive and industrial customers takes longer, utilization could stay low, which would weigh on revenue and earnings.
• Nucor cites significant benefits from Section 232 tariffs, tighter treatment of derivative products and lower import share at about 15%. Any future softening of trade enforcement or new routes for subsidized foreign steel into North America could pressure domestic pricing, metal spreads and net margins.
• The company is tying a growing part of its business to long duration projects in nonresidential construction, data centers, border fence, pipelines, LNG terminals and power transmission. If public funding priorities, political support or corporate capital spending in these areas slow over time, shipments and earnings from mills and Steel Products could be at risk.
• Management is pursuing high capital expenditure programs, including an estimated US$2.5b of CapEx in 2026 and substantial spending on growth projects. If returns on these projects are lower than expected or if start up costs remain elevated for longer, free cash flow, net margins and overall earnings could come under pressure.
• The business model benefits from a highly variable cost structure and relatively low energy exposure at about 10% of steelmaking cost. However, long term growth in power demand from data centers and potential changes in energy policy could still lift electricity and gas costs over time, which would compress metal spreads and reduce earnings if Nucor cannot fully pass these costs through in pricing.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Nucor is $250.0, which represents up to two standard deviations above the consensus price target of $204.71. This valuation is based on what can be assumed as the expectations of Nucor's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $250.0, and the most bearish reporting a price target of just $138.17.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be $40.6 billion, earnings will come to $4.0 billion, and it would be trading on a PE ratio of 17.8x, assuming you use a discount rate of 8.8%.
• Given the current share price of $225.11, the analyst price target of $250.0 is 10.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.