1. Tyler Clayton
April 30, 2012
FIN 5326 Equity Valuation & Analysis | Dr. Ryan Whitby | Texas Tech University

2. Company Description
 Largest steel recycler in North America
 Largest steel producer by tonnage in
the United States
 Largest „mini-mill‟ operator in the
United States

3. Company Description
 58 operating facilities, primarily in the
United States and Canada
 Total annual steelmaking capacity is 26
million tons
 2009 – first year since 1966 Nucor had a
negative net income

4. Company Description
 Three (3) company segments:
1. Steel mills – accounts for 96% of total
revenue
2. Steel products
3. Raw materials

5. Company Overview
Price 39.06 (11:15 AM Today)
Market Capitalization 12.47 Billion
Fiscal Year 2011 End Date January 31, 2011
Fiscal Year 2011 10-K Release February 28, 2012
2012 Q1 Filing Date April 19, 2012
Headquarters Charlotte, North Carolina
Shares Outstanding 317.69 Million
Average Trading Volume (3 Month) 2,798,140
Institutional Ownership 75%
Insider Ownership 0.22%
Float 316.01M

6. Company Overview
Beta vs. S&P 500 1.09
Dividend Yield (Gross Yield) 3.70%
Dividend/Share .365
EPS (Trailing 12M ) 2.440
ROA 5.95%
ROE 11.06%

7. Ratios – Nucor Website
Source: Nucor

8. Ratios
Price/Book 1.65
Price/Sales .62
Price/Cash Flow 8.68
Price/Free Cash Flow 22.20
Price/Earnings (Trailing 12M) 16.39
Price/Earnings (Forward 12M) 10.1
Payout Ratio 61.00%

9. Dividends
Source: Bloomberg

10. Nucor Price Chart (10 Year Chart)
Source: thinkorswim

11. Nucor‟s Strengths
 Superior long-term fundamentals and growth prospects
1. Low-cost operations
2. Technological innovation – electric arc furnaces, Castrip
facilities
3. Superior product mix
4. Strong balance sheet – strong cash flow, low amount of
debt, high credit rating
 Vertical Integration through Mergers & Acquisitions
 Capital Investments
 Dividends

12. „Nucor Culture‟s Five Areas‟
 Decentralized management philosophy
 Only five (5) managerial levels
 Supervisor/professional, department manager, division general
manager, executive vice president, and President/CEO
 Less than 95 employees at corporate headquarters
 Performance based compensation
 Pay for performance: even hourly workers
 Employee focused
 Non-unionized
 Egalitarian benefits
 Senior officers do not receive traditional “perks”
 Many of Nucor‟s programs (profit sharing, scholarship
program, service award programs) only available to lower-level
employees

13. „Nucor Culture‟s Five Areas‟
 Customer service and quality
 Member of U.S. Green Building Council and participant in other
elite environmental programs
 Technological leadership
 One of first companies to use electric arc furnaces to melt recycled
steel
 Castrip – casts sheet steel directly from molten steel with the need for
heavy, expensive, and energy-consuming rollers
 Allows mills to be built in 1/6 the space of a „mini-mill‟ and 1/10 the
cost of a traditional integrated mill
 Pilot projects in Western Australia and Brazil
 Which develop low-cost sources of iron for use in its mills

14. SEGMENTATION

15. Geographic Segmentation
Source: Bloomberg

16. Product Segmentation
Source: Bloomberg

17. HOW STEEL IS MADE

18. Primary Materials Used: By Segment
How Obtained
 Steel Mills - Ferrous Scrap
 Primarily acquired from various sources via DJJ brokerage
services, including from DJJ scrap processing facilities
 Steel Products - Steel
 Almost entirely acquired through Nucor‟s steel mills segment
 Raw Materials - Ferrous and Nonferrous Scrap
 Purchased from a variety of sources
1. Manufactures and industrial plants
2. Sources which generate or recycle steel
scrap, aluminum, copper, stainless steel, and other
nonferrous metals
3. Scrap dealers, peddlers, auto wreckers, demolition firms
and others who generate steel which they collect from a
variety of sources

19. How Steel is Made
 Raw Materials Used:
 Iron Ore
 Natural Gas
 Recycled Steel Scrap / Scrap Substitutes
 Coke
 Freight
 Alloys
 Energy

20. Production: from Raw Materials

21. Production: from Scrap Steel

22. COMPANY SEGMENTS
(STEEL MILLS, STEEL PRODUCTS, RAW
MATERIALS)

23. Steel Mills
 Products sold from steel mills are tied to capital and durable goods
spending and are affected by changes in general economic
conditions
 Sell to end markets of automotive, heavy equipment,
construction, energy and general manufacturing
 Sells products primarily to steel services centers, fabricators and
manufactures located United States, Canada, and Mexico
 2011: approximately 86% of the production by steel mills were
sold to external customers
 Maintains inventories to fulfill anticipated orders

24. Steel Mills
 Castrip facility – Blytheville, Arkansas
 Nucor holds exclusive rights in the U.S. and Brazil
 Breakthrough technology which involves the direct
casting of molten steel into near final shape and
thickness with minimal hot or cold rolling, allowing
lower investment and operating costs, reduced energy
consumption and smaller scale plants that can be
economically built, and lower environmental emissions
 Special bar quality mill – Memphis, Tennessee
 Estimated annual capacity of 850,000 tons

25. Castrip – Energy Savings
Source: Nucor

26. Steel Mills – Sheet Sales
 2011: about 50% of sheet sales were to contract
customers
 Should help navigate through slow economic recovery and
maintain near-term profitability
 Sheet sales contracts permit price adjustments to reflect
changes in prevailing raw material costs, typically having
terms ranging from six (6) to twelve (12) months
 Steel contract sales outside of sheet sales were not
significant

27. Steel Mills – Plate, Structural, Bar Steel
 Plate, structural, reinforcing, and merchant bar
steel come in standard sizes and grades
 Maintain inventory levels to meet customers‟
expected orders
 Bar mill group
 Manufactures hot-rolled SBQ products to exacting
specifications primarily servicing the automotive,
energy, agriculture

28. Steel Products
Source: Nucor

29. Steel Products - Overview
 Market for steel products are tied to capital and
durable goods spending and are affected by
changes in general economic conditions
 Sell steel joists and joist girders, and steel deck to
general contractors and fabricators located
throughout the United States
 Make products to customers’ specifications
 DO NOT maintain inventories of finished steel
products

30. Steel Products
 Majority of contracts are firm with fixed prices
 Usually done on competitive basis against other
suppliers
 Longer term supply contracts may permit Nucor to
adjust prices to reflect changes in prevailing raw
materials costs
 Sell fabricated reinforcing products only on a
construction contract bid basis
 Used by contractors in constructing highways,
bridges, reservoirs, utilities, hospitals, schools,
airports, stadiums, and high-rise buildings

31. Raw Materials - Overview
 Goal of controlling six to seven million tons of
annual capacity in high quality scrap substitutes
 Processes ferrous and nonferrous scrap
metal for use in Nucor‟s steel mills and for sale to
various domestic and international external
customers
 Brokers ferrous and nonferrous metals and scrap
substitutes
 Supplies ferro-alloys
 Provides transportation, material handling, and
other services to users of scrap metal

32. MERGERS & ACQUISTIONS

33. Recent Mergers and Acquisitions / Partnerships
 2007 – Harris Steel Co.
 Acquired by Nucor – located in Canada
 Produces reinforcing steel (rebar) fabrication
 Allowed Nucor to expand its presence in the type of steel used
to build bridges, highways, and other infrastructure projects
 Capacity more than doubled since Nucor purchase (770,00
tons up to1,563,000 tons)
 2007 – Magnatrax
 Acquired by Nucor - created Nucor Buildings Group
 Done to bolster its share in the pre-engineered metal building
systems market
 Magnatrax was made up of four brands: American Buildings
Company, Gulf State Manufactures, Kirby Building
Systems, and CBC Steel Buildings

34. Recent Mergers and Acquisitions / Partnerships
 2008 - David J. Joseph Company (DJJ)
 Acquired by Nucor – DJJ was one of the largest scrap
brokerages
 Processing of ferrous and nonferrous metals
 Primary raw material used by Nucor‟s electric arc
furnace steel mills
 Brokers ferrous and nonferrous metals, pig iron, hot
briquetted iron (HBI) and direct reduced iron (DRI)
 Q1 2012 – acquired three (3) metal recycling
companies, providing additional annual capacity of
275,000 tons

35. Recent Mergers and Acquisitions / Partnerships
 2008 - Duferco S.A., Duferdofin Nucor S.r.1.
 International company operating in Italy
 Operates a 1M tons-per-year steel melt shop with a bloom billet
caster and three (3) rolling mills
 2010 - Mitsui & Co.
 Formed agreement to form NuMit LCC
 Nucor owns a 50% economic and voting interest
 Nutmitt LCC
 Owns 100% equity interest in Steel Technologies LLC
 Steel Technologies operates 25 sheet processing facilities
located throughout United States, Canada, and Mexico

36. FUTURE GROWTH POTENTIAL

37. Capacity Utilization in U.S. – By Segments
 Steel Mills
 Q1 2012: 79% (Industry rate of 78%)
 2011: 75%
 2010: 70%
 2009: 52%
 2008: 81%
 2007: 87%
 Steel Products
 2011: 57%
 2010: 54%
 Raw materials
 2011: 70%
 2010: 69%

38. Going Forward : Nucor Future Growth
 Direct reduced iron (DRI) facility
 In Louisiana
 Received air quality permit in 2011 from the Louisiana
Department of Environmental Quality for facility to be
built
 Allows for construction of two plants with a
combined annual DRI production of 5,500,000 tons
 Broke ground on first plant in March 2011
 Scheduled to start-up in mid-2013

39. Going Forward : Nucor Future Growth
 International Growth
 Australia, Brazil
 Technology Advancements
 Strong cash flow and balance sheet should provide
opportunities and flexibility for continued future growth

40. Future Growth - Capital Spending in Nonresidential
Construction Market in United States
 Large driver of Nucor sales within United
States
 Industrial and commercial sectors
 Capital spending on infrastructure that is
publicly funded such as
roads, bridges, schools, prisons, and hospitals
 Nucor heavily impacted by strength of sales to
automotive companies
 Negatively impacting by Japanese earthquake and
tsunami in March 2011

41. EFFECT OF STEEL PRICE ON
NUCOR

42. Steel Price Index (2006 – Current)
Source: Bloomberg

43. Nucor Price (2006 – Current)
Source: Bloomberg

44. Scrap Prices
 Based on changes in global
supply/demand
 Which is based on changes in global
supply/demand for steel products
 Late 2003 – Q3 2008 – sharp rise in price
of scrap steel
 Large rise in demand for scrap steel:
domestic and internationally
 Nucor surcharge – tied to market indices
tied to steel scrap and other raw materials

45. PRODUCERS/CONSUMERS OF NUCOR
STEEL
(SUPPLY CHAIN)

46. Supply Chain
Source: Bloomberg

47. Suppliers to Nucor
% of Suppliers Revenue - 2011
1. Cliffs Natural Resources – 7.09%
2. AMG Advanced – 3.35%
3. Precision Cast parts – 0.56%
4. Praxair Inc. – 0.14%
 Diversified Supplier Base - not reliant on single supplier
 Supplier Code of Conduct

48. Consumers of Nucor Products
Nucor‟s % of revenue derived - 2011
1. Deere & Co. – 3.94%
2. Caterpillar – 3.13 %
3. Nissan – 2.90%
4. Tenaris – 2.73%
5. Bayer Motor – 1.75%
6. Whirlpool - 0.91%
7. Electrolux – 0.30%
8. Evraz – 0.55%
 Diversified Consumer Base - Not reliant on single consumer
for revenue

49. PORTER’S FIVE FORCES

50. Rivalry Among Existing Competitors
HIGH
 Cost competitive
 Many current players
 Lack of product differentiation
 Must form relationships with buyers

51. Threat of New Entrants
LOW
 Large Barriers to Entry
 Capital Intensive
 Already high level of competition
 Many current players
 Little product differentiation
 Price competitive
 Regulation and Environmental Laws

52. Substitutes
LOW
 For the most part, no other metal
can offer equal benefits per cost
compared to steel
 Aluminum: most potential substitute,
but does not offer strength of steal

53. Supplier Power
 Need for raw material
 No substitute for scrap metal
MEDIUM
and iron ore
 Size of Nucor will help due to
purchase in bulk from suppliers

54. Buyer Power
 Lack of product differentiation
HIGH
 Overcapacity
 Competition from steel imports
to United States
 Critical to form strong relationships with
large buyers, such as automobile industry and
large scale construction companies

55. RISKS

56. Factors Effecting Future Business /
Sales
 Global / U.S. economy
 Uncertainties surrounding severe economic downturn in
construction markets and excess world capacity for steel
production
 Pressure from imports
 Challenging legality of imports from China
 Changes in law or government regulations
affecting environmental compliance
 That may result in greater regulation of greenhouse gas
emissions, which could increase Nucor‟s energy costs, capital
expenditures, and operating costs

57. Macro Environment / Risk Factors
 Cyclical industry
 Commodity prices / Cost of raw materials
 Especially scrap steel
 Changes in availability and cost of
electricity and natural gas
 Subject to volatile market conditions

58. COMPETITORS

59. Competitors - Domestic
North American Competitors
1. United States Steel Corp
1. Integrated steel producer of flat-rolled and tubular
products with major production operations in North
America and Europe
2. Market Cap: 3.67B
2. Schnitzer Steel Industries
1. Recycler of ferrous and non ferrous scrap metal
2. 43 operating facilities throughout 14 states
3. Market Cap: 1.15B
3. Steel Dynamics
1. Steel producer and metals recycler in the United States
2. Market Cap: 3.08B

60. Nucor – International Locations

61. Competitors - International
International Competitors
1. ArcelorMittal
1. Global steel producer that produces range of finished and semi-finished
products
2. North America, South America, Europe, Asia, Africa
3. Flat products, including sheet and plate, long products, including
bars, rods, and stainless steel products
4. 10% of world‟s steel output
5. Market Cap: 29.55B
2. POSCO
1. Korea
2. Integrated steel producer of hot rolled steels, steel plates, wire rods, cold
rolled steels, electrical steels, etc
3. Gerdau SA
1. Brazil – leading steel producer in Brazil (also operations in other areas of
South America, as well as North America and Europe)
2. Produce long steel and flat steel items mainly through the process of
fabrication in electrical furnaces from scrap metal and purchased pig
iron, as well as through blast furnace

62. U.S. Steel (X) Price (2006 – Current)
Source: Bloomberg

63. Steel Dynamics (STLD) Price (2006 – Current)
Source: Bloomberg

64. Arcelormittal (MT) Price (2006 – Current)
Source: Bloomberg

65. Valuation – vs. Peers
Source: Bloomberg

66. Revenue Comparison – vs. Peers
Source: Bloomberg

67. Capital Structure – vs. Peers
Source: Bloomberg

68. FINANCIALS
Following “Financials” Charts Sources: Nucor and Bloomberg

69. Balance Sheet - Q1 2012

70. Balance Sheet – Assets (Annual)
Common Sized and Growth %

71. Balance Sheet – Liabilities and Equity (Annual)
Common Sized and Growth %

72. 2012 Q1 - Income Statement

73. Income Statement (Annual)
Common Sized and Growth %

74. 2012 Q1 – Cash Flows

75. Statement of Cash Flows (Annual)

76. Net Sales – Year Over Year

77. Net Sales – Product Mix

78. Net Earnings / ROE

79. Analyst Recommendations

80. Earnings Surprise - Quarter

81. Earnings Surprise - Annual

82. NUCOR (NUE) STOCK
EVALUATION

83. Nucor Beta – vs. S&P 500
Source: Bloomberg

84. Price Charts (6 Months)
Source: Bloomberg

85. Price Charts (2 Years)
Source: Bloomberg

86. 6 Months – vs. Competitors
Source: Yahoo Finance

87. 2 Years – vs. Competitors
Source: Yahoo Finance

88. 5 Years – vs. Competitors
Source: Yahoo Finance

89. VALUATION

90. Credit Rating
 Highest credit rating – for any metals and
mining company in North America
 Investment grade rating
 Moody‟s – A2
 S&P - A

91. Credit Profile
Source: Bloomberg

92. Bloomberg Default Risk - Industry
Source: Bloomberg

93. Capital Structure
Source: Bloomberg

94. Nucor – Country and Equity Risk Premium
Source: Bloomberg

95. From 2012 Q1 Results – Company Expectations Going
Forward
 Sold order entry rates
 2011 started strong with increase volume and price
recovery
 Construction market stabilizing
 Increases in backlogs and in order entry rate in Harris
rebar and building systems
 Improvement in orders of pre-engineered metal
buildings
 Which usually improve before joist business
 Sign of jobs in this area picking up – more jobs seen in
this area for some time

96. Valuation - DCF
 Forecasted Revenue through 2017 (5 Year Investment
Period), finding FCF for each year
 Projected growth of around 9.5% over this period
 Perpetual growth of 2.5%
 Adjusted WACC
 Treasury Rates (1, 2, 3, 5 Year), Adjusted Risk Free, Market
Risk Premium
 MV per share = $49.32

97.  Buy
 Vertically Integrated: Growth Through M&A
 Growing International Presence
 Advanced Technology
 Better able to adapt to potential increases of input and
energy costs
 Favorable Economic Growth Ahead
 Strong Dividend Yield: 12 Month Yield of 3.24%