NUE

1
(NUE)
12/8/2008

• Andrew Argetsinger
• Travis Coberly
• Benjamin Smith

2
Investment Thesis

• (NUE) Buy Target Price 61.00
• Nucors variable cost structure has led to
  increased margins of up to 19.6 in the 3rd
  quarter of 2008 from 18.1 in the 1st quarter of
  2008 and maintains Nucors ability to remain
  profitable in a recession.
• Nucors strong balance sheet can withstand a
  protracted recession unlike competitors and
  positions Nucor to continue their aggressive
  capital expenditure plan.
• Committed infrastructure spending by President
  Elect Obama will help stimulate demand for steel
• Transparency and access to information adds value
  to the APM learning experience

3
Overview1

• North Americas largest steel recycler
• Recycled steel - largest input (over 95)
• 2008 Product Mix

4
Basic Statistics
5
NUE Acquisitions FY 2000 2Q 20081
1
6
US Infrastructure Spending

• President Elect Obama intends to create 2.5
  million jobs through infrastructure spending over
  the next three years.
• This primarily includes rebuilding our roads and
  bridges.2
• NUE is the Largest Structural Producer, Bar
  Producer, Rebar Producer, Cold Finished Bar
  Producer, Steel Joist Producer, Steel Deck
  Producer, Rebar Fabrication, Distribution,
  Placement Company

7
Commodity Prices Falling2

• In the second half of 2008, scrap prices have
  been falling much faster than finished product
  prices
• Near record margins for NUE, at 575/ton.
• Variable Cost structure allows NUE to thrive in a
  bear market with demand down when competitors are
  suffering

3
8
Sales by Ton

• Through acquisitions and expansion, NUE has been
  able to increase tonnage of steal sold when
  demand is decreasing

9
DCF Valuation

• WACC 9.3
• Terminal Growth 3
• Target Price 61.00
• Decline in sheet and bar steel tons sold 1 in
  2009, with sales recovering in 2010 through 2011
  of 2
• Bull Case Target Price 70.00
• Mere increase in sheet and bar steel tons sold of
  2 through 2011.
• Bear Case Target Price 45.00
• Decline in sheet and bar steel tons sold 4 in
  2009, 3 in 2010 and 2 in 2011 gradually
  leveling off.
• Not much downside potential (assuming rational
  investing)

10
Relative Valuation

• Intrinsic Price 36.33
• However, this is misleading because
• 1) NUEs strong balance sheet
• 2) cost structure.
• As Steel prices drop, competitors gross margins
  shrink as Nucors reflect relationship between
  steel and scrap steel prices.

• While NUEs market cap is over six times the
  comparative average, its amount of long-term debt
  is only 1.4 times the average. This gives NUE a
  debt ratio that is lower than the comparative
  average.
• Competitors used include (X), (STLD), (GNA),
  (AKS) and (CMC)

11
A Strong Balance Sheet

• Current financial crisis has beat down
  competitors prices.
• Competitors with weaker balance sheets (heavy
  debt) have lower equity values
• NUEs competitors will be trading at a much lower
  earnings multiple because
• leverage induced risk of default
• exposure to steel price volatility.

12
NUE and the APM Portfolio

• Obamas plan
• The portfolios lack of stocks in
  infrastructure-building sectors
• Recommend position equal to 2 of portfolio
• Recommend selling energy stocks to generate cash
• Effect on Beta will be minor

2
13
Works Cited

• (1) Nucor, Investor Relations. http//www.nucor.co
  m/indexstory.aspx?story22 Accessed 11/25/2008
• (2) Gandel, Stephen. The Stocks Under Obama.
  (2008). TIME. http//www.time.com/time/specials/pa
  ckages/article/0,28804,1856034_1856035_1856031,00.
  html. Accessed 12/3/2008
• (3)  Nucor, Investor Relations.
  http//www.nucor.com/indexstory.aspx?story22
  Accessed 11/25/2008