Heavy Metal Week: I'm Bent on Nucor
Let's look at two ways this steel stock could roll out on the charts.
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Steel Monday? Men of steel? What's going on is this: Coming off of a weekend when Nippon Steel NPSCY had hired former U.S. Secretary of State Mike Pompeo to advise its attempt to acquire U.S. Steel X, two of U.S. Steel's domestic competitors will be reporting their respective second-quarter financial results. For one, the always popular Cleveland-Cliffs CLF, fresh off a deal of its own to acquire Stelco Holdings STZHF of Canada, and, for two, the name I am booking at, Nucor Corporation NUE. Under current CEO Leon Topalian, Nucor has built a reputation (in my opinion) for efficient management, and it may be time for that "better than the rest" management to be reflected in the share price.
Nucor does not have a deal to report, or any that have recently been announced, to boast of. Less than two weeks ago, the Biden Administration had announced a new set of tariffs on steel and aluminum shipments diverted through Mexico on its way to the U.S. as a way for Chinese exporters to circumvent existing levies against that nation. That's a positive that should impact all domestic producers.
Expectations & Fundamentals
Wall Sreet is looking for unadjusted earnings per share of $2.45 this evening from Nucor on revenue of about $7.5 billion. This would be down from $5.81 on $9.62 billion for the year-ago comps and down from $3.46 on $8.14 billion for the first quarter. The company had warned us three months ago that earnings would be lower this year due to lower selling prices that might be offset modestly by increased volumes. This was expected to hit both the steel mills segment and the steel products segment, while the raw materials segment is expected to show growth.
Free cash flow will be watched closely tonight, as first quarter operating cash flow of $459.653 million for the first quarter led to free cash loss of $1.13 billion, which was well off of the first-quarter 2023 prints of $1.207 billion in operating cash flow and free cash flow of $676 million.
As of the end of the March quarter, Nucor had a cash position of $5.539 billion and inventories of $5.59 billion. That put current assets at $14.643 billion, which measured up very well against current liabilities of $3.646 billion. This included very little short-term debt and $346 million in unearned revenue which is not a true financial obligation. The company's current and quick ratios stood at 4.02 and 2.48 respectively. Both readings are quite robust.
Goodwill and other intangibles make up just about 20% of total assets, which is not alarming. Long-term debt stood at $6.648 billion, which is not all that scary a number given the cash position, but I would feel better about that if the firm could return to positive free cash flow. The firm pays an annual dividend of $2.16, which is good for a yield of 1.33%. The firm did repurchase$1.005 billion worth of common stock for its treasury during the first quarter. Though at the start of the second quarter the firm had more than $2.3 billion left in the current repurchase authorization, I would be impressed to learn that while cash flows were not what they once were, that these repurchases cooled off a bit.
Ratings Move
Analyst Alexander Hacking of Citigroup, who is rated at five stars by TipRanks, reiterated his "Buy" rating on NUE as well as his $240 target price. Hacking did cut his estimates for the third and fourth quarters, but also stated that he sees "current steel market weakness as transient vs. positive mid-term trends."
Bending the Charts
We see a triple-bottom reversal pattern here with a $161 pivot. Relative strength is neutral to above neutral as the daily moving average convergence divergence appears to be accelerating, and currently stands in bullish territory as all three components are in positive territory and the 12-day exponential moving average is above the 26-day EMA. There is also an unfilled gap in the high $180's left over from late April.
Let's zoom out just a bit...
Do we see NUE as about two-thirds of the way through the development of an inverse head and shoulders pattern? This too would be bullish. The neckline is running with the 200-day SMA at the moment. If this is the dominant pattern, then $169 is the pivot.
Two Potential Technical Outcomes...
... Both are bullish
Triple Bottom
Pivot: $161
Target Price: $185
Panic: Fourth Bottom.
Inverse Head and Shoulders
Pivot: $169
Target Price: $194
Panic: Loss of 21-day EMA.
At the time of publication, Guilfoyle had no position in any security mentioned.
