The steelmaker Nucor (NUE -1.08%) just reported a stellar first quarter, and said it expects second-quarter results to be a record. That caused shares to jump to an all-time intraday high of almost $188 per share last week.
Several factors are helping to drive momentum in the company's business leading to the record results. Taking a look at those drivers should help investors feel more confident in buying Nucor shares, even near its record high level.
Image source: Getty Images.
Pricing holding strong
2021 was an unusual year for the steel industry in several ways. During the shock of the pandemic in 2020, many steel buyers suspended or throttled back operations. But demand sprung back quickly, and it depleted inventories in construction, automotive, and other markets. As with any cyclical industry, the supply-and-demand dynamics took over, and steel prices soared in late 2020 and into 2021.
At the peak, steel prices had more than tripled from pre-pandemic levels. While the pandemic-induced spike did reverse course somewhat, historically higher prices for hot rolled sheet are still holding.
Data source: Investing.com. Chart by author.
Prices spiked again recently as global supply and pricing uncertainties grew after Russia invaded Ukraine. But as the above five-year chart shows, prior to the most recent surge, prices were still about double where they have trended in the three years prior to the pandemic.
Record results
While some analysts thought Nucor's record year in 2021 would be an outlier, the strong demand and resilient pricing have led the company to predict the second quarter will yield another earnings record. And that will follow a first quarter where net earnings were 125% higher than the prior-year period.
Those results and outlook had investors buying up shares. The stock reached its all-time high after the first-quarter report. And management expects the business to continue to thrive, with CEO Leon Topalian telling investors on the quarterly conference call, "We expect another strong year in both earnings and cash generation."
Several levers to boost returns
The post-earnings spike in the share price didn't hold, as the general market remains volatile. But that could be a good opportunity for prospective shareholders. Nucor focuses on providing value to shareholders in several different ways. First and foremost, it invests back into the business to secure future growth. In the same five-year span as shown in the steel price chart above, the company has cumulatively invested nearly $9.5 billion to support and grow its business.
Data source: Nucor. Chart by author.
Nucor has also repurchased about 17% of its outstanding shares since 2017, helping to give shareholders a meaningfully larger portion of ownership. That should continue as long as management believes the stock is a good value, as the company has about $2.94 billion remaining on its existing share-buyback authorization.
And Nucor not only pays a dividend to shareholders, it has also raised the payout for 49 consecutive years. If it increases the dividend again this year as expected, Nucor will join the list of Dividend Kings with 50 consecutive annual increases.
With a history of taking care of shareholders, a supportive pricing environment along with strong demand, and another year of historically strong earnings, investors should look at investing in Nucor, even with the stock near its all-time high.
