Cramer's Investing Club: Dirt-cheap Nucor remains attractive after big earnings beat

Published Thu, Jan 27 20224:46 PM ESTUpdated Thu, Jan 27 20225:07 PM EST

Nucor (NUE) reported better-than-expected fourth-quarter earnings Thursday morning. Net sales of $10.36 billion (flat QoQ) slightly missed estimates of $10.446 billion, but record earnings per share of $7.97 (up from $7.28 in 3Q21) was above management's preannouncement range of $7.65 to $7.75 and higher than estimates of $7.91. Nucor wrapped up the safest and most profitable year in the company's history by generating a whopping $2.610 billion in cash from operations in the quarter. Nucor's impressive cash performance has enabled it to return significant amounts of cash back to shareholders via dividends and buybacks. In fact, Nucor bought back so much stock in 2021 that they reduced the share count by more than 11%. Expect more buybacks In the fourth quarter alone, Nucor stepped up its buyback cadence, repurchasing 13.5 million shares at an average price of $111.63. That average price is not good with NUE shares currently sitting in the mid-$90s, but management made it clear on the conference call that they think the stock is too cheap right here. "Our analysis suggests that Nucor's shares are significantly undervalued relative to our risk profile earnings and cash flow generation capacity," CFO James Frias said on the call. Based on this comment, we think it is reasonable to assume that management plans to be very aggressive with its buyback in the first quarter. As of December 31 st , 2021, Nucor has approximately $3.8 billion remaining available for repurchases under its current program. As for the outlook, the company said it is confident that 2022 will be another year of strong profitability. This is a key statement because there is some controversy over what Nucor will earn this year. Bears think earnings fall significantly as new supply causes the price of steel to drop, but the bulls believe estimates are too low. If you take a look at some of the biggest demand drivers in steel, we can make the case the demand will be higher in 2022 over 2021. Demand in nonresidential construction has not slowed, the easing of the chip shortage should lead to a strong recovery in auto production, new investments in the oil and gas industry are overdue, and we have still not seen the full benefit of any upcoming infrastructure investment. All told, we are believers that the current steel cycle will be a multi-year story and not fall off a cliff like many think it will. For the first quarter of 2022, management expects net earnings will be "slightly reduced" from the record results released this morning. The current consensus first-quarter 2022 earnings estimate on FactSet is $7.02, so that is about in line with what analysts are expecting. Factoring into this guide is an expected decline in steel mill segment earnings due to decreased profitability at sheet mills. Steel products are expected to achieve further margin expansion and profitability though, as Nucor's backlog pricing has improved and reflects higher steel costs. The raw materials segment is expected to see earnings improve slightly sequentially due to improved profitability at direct reduced iron facilities, partially offset by the impact of lower scrap prices. Also, a lower-weighted-average share count (a result of the buyback) will provide a positive benefit as well. Our take It was a strong quarter for Nucor that capped off a record year. With steel demand expected to rise this year over 2021, and Nucor expected to generate (and return to shareholders) several more billions in cash, we continue to believe this dirt-cheap stock—trading at roughly 5.5x consensus 2022 earnings estimates—has not gotten the respect it is due. We'll get the full Nucor story later tonight when CEO Leon Topalian is on Mad Money. (Jim Cramer's Charitable Trust is long NUE. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. THE ABOVE INVESTING CLUB INFORMATION IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY , TOGETHER WITH OUR DISCLAIMER . NO FIDUCIARY OBLIGATION OR DUTY EXISTS, OR IS CREATED, BY VIRTUE OF YOUR RECEIPT OF ANY INFORMATION PROVIDED IN CONNECTION WITH THE INVESTING CLUB. NO SPECIFIC OUTCOME OR PROFIT IS GUARANTEED.

A truck driver chains down a roll of steel to his flatbed at the NUCOR Steel Gallatin plant in Ghent, Ky.

Timothy D. Easley | AP

Nucor (NUE) reported better-than-expected fourth-quarter earnings Thursday morning.