Skip to Content
Stock Analyst Update

Nucor's Independence Tube Purchase Is No Surprise

The announcement of additional acquisitions remains a distinct possibility for this steelmaker, thanks to its healthy balance sheet, sizable cash position, and free cash flow generation.

Mentioned:

On Sept. 19,  Nucor (NUE) announced the acquisition of Independence Tube Corporation (ITC) for a total consideration of $435 million. Per the company's press release, this figure is roughly six times ITC's average annual EBITDA from 2013 to 2015. The price paid falls in line with the 6.0 times midcycle EV-to-EBITDA multiple that we assign to Nucor in our valuation model. To reflect the impact of the ITC acquisition, we've raised our EBITDA forecasts for Nucor by roughly $70 million annually over our explicit forecast period. The impact of higher profits is largely offset by the purchase price and, therefore, our fair value estimate for Nucor is unchanged at $35 per share. Due to our outlook for falling steel prices and elevated import volumes, Nucor and every other U.S. steelmaker under our coverage is trading at a premium to fair value.

This acquisition marks Nucor's largest since its $770 million purchase of Gallatin Steel in 2014 and its $605 million acquisition of Skyline Steel in 2012. Given Nucor's healthy balance sheet, sizable cash position of $1.8 billion at the end of the second quarter, and solid free cash flow generation, we aren't surprised at the announcement of an acquisition. The announcement of additional, although likely smaller, acquisitions remains a distinct possibility, consistent with Nucor's $29 million tuck-in acquisition of Joy Global's Texas steel plate mill in July.

ITC provides Nucor with additional exposure to the nonresidential construction end market, as the company produces 600,000 tons of hollow structural sections (HSS) annually. For comparison, Nucor's Steel Mills segment shipped 2.2 million tons of structural steel in 2015. Manufactured in round, square, and rectangular shapes, HSS are typically used in nonresidential construction applications including buildings and bridges. Nucor will likely supply ITC's facilities via its nearby sheet mills in Alabama, Indiana, and Kentucky.

Morningstar Premium Members gain exclusive access to our full analyst reports, including fair value estimates, bull and bear breakdowns, and risk analyses. Not a Premium Member? Get this and other reports immediately when you try Morningstar Premium free for 14 days.

Andrew Lane does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.