Shares of the steel manufacturer, Nucor (NUE), are down less than 1% year to date after being down as much as 13% in early February. On July 24, Nucor reported Q2 EPS of $0.46 vs. the $0.40 estimate and revenue of $5.29B vs. the $5.22B estimate. Steel mill shipments increased 9% in the quarter. They expect to see a stronger improvement in earnings for the third quarter as well.
Valuation
Nucor trades at a P/E ratio of 16.15x (2015 estimates) with 57.8% EPS growth (42.1% this year), price to sales ratio of 0.81x, and a price to book ratio of 2.12x. Revenue growth will come in at 2.5% in 2015 following a 9% rise this year. Their 2.85% dividend yield is larger than both Steel Dynamics (2.08%) and United States Steel (0.56%). On July 25, JPMorgan Chase maintained an overweight rating, but lowered their price target to $57 from $58 (average analyst price target is $54.45).
Unusual Options Activity
On August 13, over 8,400 Oct $52.50 calls traded with the majority being purchased for $1.27-$1.37 each (more than twice the open interest of 3,763 contracts). The call to put ratio was 11:1. Call activity was 9x the average daily volume.
Nucor Options Trade Idea
Buy the Oct $52.50/$55 call spread for a $1.00 debit or better
(Buy the Oct $52.50 call and sell the Oct $55 call, all in one trade)
Stop loss- None
First upside target- $2.00
Second upside target- $2.40
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