Recent revenue figures at Nucor (NYSE: NUE) indicate that steel is no longer a value investment.
Basically Nucor’s revenues have collapsed over the past year. Nucor reported revenues of $20.40 billion in March 2015 and $15.76 billion a year later. That makes for a revenue loss of $4.64 billion or nearly $5 billion in a year. If the revenue figures are accurate, Nucor lost one fourth of its market in a year.
It also means that we can expect even greater revenue losses on Nucor’s next earnings report. The company’s revenues fell by $680 million during the first quarter of 2016, dropping from $16.44 billion in December to $15.76 billion in March.
Is Nucor Losing Money?
It looks as if Nucor’s current business model could be unsustainable. The company saw close to half of its net income vanish in a year. Nucor reported a net income of $670.72 million in March 2015, and $360.61 million in March 2016.
Those numbers equal $310.11 million in lost income in a year. Another year of such income collapse and Nucor could be operating at a loss.
Despite that Nucor has some serious float; it reported $2.328 billion in cash and short-term investments, $2.144 billion in cash from operations and a free cash flow of $470.16 million on March 31, 2016. That indicates a company with the resources to survive in the near future.
Nucor is swimming in Debt
The big threat to Nucor’s future is debt; the company reported $4.375 billion in long term debt and $6.969 billion in liabilities on March 31, 2016. Given the income decline, Nucor may no longer be in a position to cover those liabilities.
My take is that major restructuring will be needed to save this company, because the revenue indicates that the demand for its product – steel is no longer there. It looks as if Nucor’s current resources exceed the demand in the market.
That means the current enterprise value of $17.77 billion; and the market cap of $16.8 billion, are wildly optimistic. My prediction is that this company is in for a big fall after its next earnings report.
Expect a major drop in share prices at Nucor because the $55.86 its stock was fetching on July 13, 2016, was way too high. All it will take is another lousy earnings report to send that number tumbling down.
If you are looking for a stock to short in July, Nucor might be it. If you are looking for a long-term value investment, look elsewhere because declining demand is slowly taking the value out of steel.