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Why Nucor Stock Crashed on Record Earnings

By Rich Smith – Dec 15, 2021 at 10:20AM

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And is the sell-off justified?

What happened

A funny thing happened to Nucor (NUE 0.44%) stock today -- and I mean funny-strange, not funny-funny.

First, the steelmaker preannounced its earnings for the fourth quarter of 2021, predicting that "earnings are expected to be the highest quarterly earnings in Nucor history." And then Nucor stock plunged, down 11.5% as of 1:15 p.m. ET.

Molten steel pouring in a foundry.

Image source: Getty Images.

So what

To understand why that happened, some context may be helpful. Heading into earnings season, analysts had been forecasting that Nucor would earn $7.95 per share this quarter -- definitely a record earnings number for a single quarter. In today's update, however, Nucor said the record it intends to set is for a lower $7.65 to $7.75 per share.  

Thus the disconnect: Wall Street and Nucor have different definitions of "record."

Now what

Yet despite today's sell-off, the fact remains that things are going very well indeed for Nucor.

"Steel mills segment earnings in the fourth quarter of 2021 remain robust and are expected to be comparable to the third quarter of 2021 despite lower volumes caused by year-end seasonality," says management. And the "steel products segment [will] generate increased earnings in the fourth quarter of 2021 as demand in nonresidential construction markets remains strong."

Only raw material earnings will be down, "primarily due to margin compression at our direct reduced iron facilities." But given that raw materials is already the company's least profitable division, contributing less than 3% to earnings over the past year, any decline there is likely to be infinitesimal in significance. And in the end, the company is still expecting 2021 to be "the most profitable year in Nucor's history," with earnings of more than $23 a share.

Given today's sell-off, I know I'm in the minority on this but, at a valuation of less than five times this year's earnings, Nucor stock sure looks like a bargain to me.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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