Morningstar | Nucor's 4Q Guidance Points to Record Profits in 2018, but Shares Are Trading Above Our FVE
Nucor issued impressive fourth-quarter guidance as the company closes out a record-setting year. Having updated our valuation model to reflect the fourth-quarter guidance, we expect the company to generate $4.2 billion of EBITDA and GAAP earnings of $7.28 per share. Both would represent all-time highs for the company. Management's guidance points to full-year earnings of $7.25-7.30 per share. However, our $50 per share fair value estimate and no-moat rating are unchanged.Nucor has benefited from the combination of tariff protection and a healthy baseline of steel demand in the U.S. Although we expect steel trade policies to become less restrictive over the long run, the company's operating environment should remain favorable in 2019. Our view is corroborated by management's commentary in its guidance release that strong demand and elevated prices will persist across most products. Our main area of concern in the near term relates to pricing, which we expect to soften over the course of 2019. However, we also expect lower scrap prices to take hold, which will help to support margins above the company's trailing five-year average for the flagship steelmaking segment.
Over the longer term, however, we forecast materially lower profits as metal margins contract from the elevated levels realized in 2018. We ultimately expect EBITDA to decline from $4.2 billion in 2018 to a midcycle level of only $2.8 billion by 2022.
Nucor manufactures steel and steel products. The company's operations include international trading and sales companies that buy and sell steel and steel products. The company's segments are: steel mills, which produces sheet steel, plate steel, structural steel, and bar steel; steel products, which produces hollow structural section steel tubing, electrical conduit, steel joists and joist girders, steel deck, cold finished steel, steel fasteners, metal building systems, and wire and wire mesh; and raw materials, which produces direct reduced iron (DRI), brokers ferrous and nonferrous metals, pig iron, hot briquetted iron and DRI, supplies ferro-alloys, and processes ferrous and nonferrous scrap metal.
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