Analyst's Notes. Argus Recommendations

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1 Report created Feb 2, 2012 Page 1 OF 5 Founded in 1940 and based in Charlotte, North Carolina, Nucor Corp. is a manufacturer of steel and steel products and North America's largest steel recycler. The company's three main operating units are Steel Mills, Steel Products, and Raw Materials. Analyst's Notes Analysis by Bill Selesky, February 1, 2012 ARGUS RATING: BUY Solid 4Q11 profit as sales rise 25% Nucor recently reported 4Q11 net income of $137.1 million or $0.43 per diluted share, compared to a net loss of $11.4 million or $0.04 per share in the year-ago quarter. EPS exceeded our estimate of $0.36 and the consensus estimate of $0.28. The better-than-expected performance was primarily driven by higher average selling prices, stronger volumes, improving margins, and higher utilization rates. We are maintaining our above-consensus 2012 EPS estimate of $3.40, reflecting our forecast for 6% sales growth versus the consensus forecast of 5%. In addition, we are initiating a 2013 estimate of $4.13 per share, implying growth of 21% next year. INVESTMENT THESIS BUY-rated Nucor Corp. (NYSE: NUE) reported significantly higher revenue in 4Q11, and swung to an operating profit after a loss last year. The recovery reflects stronger demand in the automotive, heavy equipment, and energy industries, which has led to higher sales of NUE's sheet, plate and SBQ (special bar quality) products. We expect further improvement in steel demand, pricing, and shipments, and look for continued solid earnings growth at Nucor in the coming quarters. We also expect the company to benefit from its manufacturing flexibility and diverse range of product offerings. Our target price remains $57. RECENT DEVELOPMENTS Nucor recently reported 4Q11 net income of $137.1 million or $0.43 per diluted share, compared to a net loss of $11.4 million or $0.04 per share in the year-ago quarter. EPS exceeded our estimate of $0.36 and the consensus estimate of $0.28. The better-than-expected performance was primarily driven by higher average selling prices, stronger volumes, improving margins, and higher utilization rates. The company's automotive, heavy equipment, energy, and general manufacturing end markets all showed improved demand. Fourth-quarter consolidated net revenue of $4.83 billion rose 25% from $3.85 billion Data Pricing reflects previous trading week's closing price. 200-Day Moving Average Price ($) Rating Target Price: $ Week High: $ Week Low: $29.82 BUY HOLD SELL EPS ($) Quarterly Annual ( Estimate) Revenue ($ in Bil.) Quarterly Annual ( Estimate) FY ends Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Dec Closed at $41.69 on 4/ ( Estimate) ( Estimate) Q2 Q3 Q Argus Recommendations Twelve Month Rating SELL HOLD BUY Five Year Rating SELL HOLD BUY Rating Weight Under Over Weight Weight Argus assigns a 12-month BUY, HOLD, or SELL rating to each stock under coverage. BUY-rated stocks are expected to outperform the market (the benchmark S&P 500 Index) on a risk-adjusted basis over the next year. HOLD-rated stocks are expected to perform in line with the market. SELL-rated stocks are expected to underperform the market on a risk-adjusted basis. The distribution of ratings across Argus' entire company universe is: 46% Buy, 49% Hold, 5% Sell. Key Statistics Key Statistics pricing data reflects previous trading day's closing price. Other applicable data are trailing 12-months unless otherwise specified Overview Price $44.82 Target Price $ Week Price Range $29.82 to $47.27 Shares Outstanding Million Dividend $1.45 Overview Basic Materials Rating MARKET WEIGHT Total % of S&P 500 Cap. 3.00% Financial Strength Financial Strength Rating MEDIUM Debt/Capital Ratio 35.7% Return on Equity 10.6% Net Margin 3.9% Payout Ratio 0.45 Current Ratio 2.80 Revenue $20.02 Billion After-Tax Income $ Million Valuation Current FY P/E Prior FY P/E Price/Sales 0.71 Price/Book 1.90 Book Value/Share $23.60 Capitalization $14.19 Billion Forecasted Growth 1 Year EPS Growth Forecast 38.78% 5 Year EPS Growth Forecast 5.00% 1 Year Dividend Growth Forecast 5.52% Risk Beta 1.22 Institutional Ownership 72.65%

2 Report created Feb 2, 2012 Page 2 OF 5 in 4Q10. The average sales price per ton rose 18%, while total tons shipped to outside customers rose 7%. The average scrap and scrap substitute cost per ton was $441 in 4Q11, up 23% from 4Q10. The average scrap and scrap substitute cost per ton for the full year was $439, up 25% from The full-year utilization rate at NUE steel mills was 74%, up from 70% in 2010 and 54% in Fourth-quarter utilization of 71% was down from 74% in 3Q11 but up from 68% in 4Q10. Total full-year energy costs rose $1 per ton from the prior year, primarily due to higher unit electricity costs. Fourth-quarter energy costs were down approximately $5 per ton from 3Q11, due mainly to lower sequential electricity costs, but were flat with the prior year. The company reported 2011 net income of $778.2 million or $2.45 per diluted share, compared to $134.1 million or $0.42 per diluted share in EARNINGS & GROWTH ANALYSIS Nucor posted an operating profit in 4Q11 following a loss in 4Q10; however, earnings were still down from 3Q as additional supply in the domestic sheet market and higher imports of Chinese sheet steel pressured pricing and margins in this segment. Chinese imports have moderated in recent weeks, however, setting the stage for increased orders at Nucor if demand remains strong. During the call, management also noted signs of modest improvement in the residential and nonresidential construction markets. We are maintaining our above-consensus 2012 EPS estimate of $3.40, reflecting our forecast for 6% sales growth versus the consensus forecast of 5%. In addition, we are initiating a 2013 estimate of $4.13 per share, implying growth of 21% next year. Our long-term growth rate forecast is 5%. FINANCIAL STRENGTH & DIVIDEND We rate Nucor's financial strength as Medium, the midpoint on our five-point scale. The company's debt is rated A2/negative by Moody's and A/stable by Standard & Poor's. At the end of 4Q11, the company's debt/capitalization ratio was 35.7%, compared to 36.9% at the end of 4Q10. Nucor had cash and equivalents of $1.20 billion at the end of 4Q11, down from $1.33 billion at the end of 4Q10. Long-term debt totaled $3.63 billion at the end of the quarter, compared to $4.28 billion at the end of 4Q10. The company has an undrawn $1.5 billion unsecured revolving credit facility that will mature in December Nucor recently announced an increase in its quarterly dividend from $ to $0.365 per share, or $1.46 annually, for a projected yield of about 3.3%. The first payment at the new rate will be made on February 10, 2012 to holders of record as of December 30, The February payment will mark Nucor's 155th consecutive quarterly cash dividend. Our dividend estimates are $1.53 for both 2012 and RISKS The steel industry is extremely cyclical and highly competitive. Growth & Valuation Analysis GROWTH ANALYSIS ($ in Millions, except per share data) Revenue 16,593 23,663 11,190 15,845 20,024 COGS 13,463 19,612 11,036 15,001 18,075 Gross Profit 3,130 4, ,949 SG&A R&D Operating Income 2,552 3, ,428 Interest Expense Pretax Income 2,253 3, ,252 Income Taxes Tax Rate (%) Net Income 1,472 1, Diluted Shares Outstanding EPS Dividend GROWTH RATES (%) Revenue Operating Income Net Income EPS Dividend Sustainable Growth Rate VALUATION ANALYSIS Price: High $69.93 $83.56 $51.08 $50.72 $49.24 Price: Low $41.62 $25.25 $29.84 $35.71 $29.82 Price/Sales: High-Low P/E: High-Low Price/Cash Flow: High-Low Financial & Risk Analysis FINANCIAL STRENGTH Cash ($ in Millions) 2,017 1,325 1,201 Working Capital ($ in Millions) 3,955 4,357 4,312 Current Ratio LT Debt/Equity Ratio (%) Total Debt/Equity Ratio (%) RATIOS (%) Gross Profit Margin Operating Margin Net Margin Return On Assets Return On Equity RISK ANALYSIS Cash Cycle (days) Cash Flow/Cap Ex Oper. Income/Int. Exp. (ratio) Payout Ratio The data contained on this page of this report has been provided by Morningstar, Inc. ( 2012 Morningstar, Inc. All Rights Reserved). This data (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. This data is set forth herein for historical reference only and is not necessarily used in Argus analysis of the stock set forth on this page of this report or any other stock or other security. All earnings figures are in GAAP.

3 Report created Feb 2, 2012 Page 3 OF 5 It may also be affected by excess global capacity, which has limited price increases during periods of economic growth and led to price decreases during periods of economic contraction. In addition, the industry faces competition in many markets from producers of aluminum, cement, composites, glass, plastics and wood. Steel producers also faces risks associated with commodity prices, interest and exchange rates, asbestos liability, and environmental issues. COMPANY DESCRIPTION Founded in 1940 and based in Charlotte, North Carolina, Nucor Corp. is a manufacturer of steel and steel products and North America's largest steel recycler. The company's three main operating units are Steel Mills, Steel Products, and Raw Materials. The Steel Mills segment offers hot-rolled steel products, including angles, rounds, flats, channels, sheet, wide-flange beams, and cold-rolled steel products. Steel Products provides steel joists and joist girders, steel deck, fabricated concrete-reinforcing steel, cold-finished steel, steel fasteners, steel grating, and metal and wire mesh. The Raw Materials segment produces direct-reduced iron (DRI); brokers ferrous and nonferrous metals, pig iron, hot briquetted iron, and DRI; and processes ferrous and nonferrous scrap products. The company also has international steel trading operations. INDUSTRY Our rating on the Basic Materials sector is -Weight. The sector looks fairly valued, with growth expectations in line with the market. The sector accounts for 3.6% of the S&P 500, and includes industries such as chemicals, paper, metals and mining. Over the past five years, the weighting has ranged from 3% to 5%. We think investors should consider allocating 3%-4% of their diversified portfolios to stocks in this sector. The sector got off to a positive start in 2011, but underperformed during 2Q, slumped badly during the sharp market selloff in 3Q, and ended up trailing the S&P 500 by hundreds of basis points. Fundamentals for the Basic Materials group are reasonable. The P/E ratio on projected 2012 EPS is 11.6, below the market multiple. The sector's debt ratios appear sound, as many in the group have deleveraged as the credit markets have reopened. Yields are in line with the market at about 2.2%. Growth expectations are average. The Street consensus calls for profits to climb 10.2% in VALUATION NUE shares are trading at 13.3-times our 2012 EPS estimate and at 10.9-times our 2013 forecast, compared to a 12-year historical P/E range of The shares are also trading below the low end of their historical range for price/book and price/sales, and appear attractive relative to peers. Although the U.S. steel industry faces ongoing challenges from rising raw material costs, lower-than-expected utilization, and the Peer & Industry Analysis The graphics in this section are designed to allow investors to compare NUE versus its industry peers, the broader sector, and the market as a whole, as defined by the Argus Universe of Coverage. The scatterplot shows how NUE stacks up versus its peers on two key characteristics: long-term growth and value. In general, companies in the lower left-hand corner are more value-oriented, while those in the upper right-hand corner are more growth-oriented. The table builds on the scatterplot by displaying more financial information. The bar charts on the right take the analysis two steps further, by broadening the comparison groups into the sector level and the market as a whole. This tool is designed to help investors understand how NUE might fit into or modify a diversified portfolio. P/E AA Value 5-yr Growth Rate(%) X NUE NEM VMC ASH FCX ABX ACI Growth 5-yr Net 1-yr EPS Cap Growth Current Margin Growth Argus Ticker Company ($ in Millions) Rate (%) FY P/E (%) (%) Rating ABX Barrick Gold Corporation 49, BUY FCX Freeport Mcmoran Copper & Gold 43, BUY NEM Newmont Mining Corp 29, BUY NUE Nucor Corp 14, BUY AA Alcoa Inc 10, BUY VMC Vulcan Materials Co (Hldg Co 5, BUY ASH Ashland Inc 5, BUY X United States Steel Corp 4, ,533.3 BUY ACI Arch Coal Inc 3, BUY Peer Average 18, P/E Price/Sales Price/Book PEG 5 Year Growth Debt/Capital

4 Report created Feb 2, 2012 Page 4 OF 5 dumping of lower-cost imported steel, these issues have receded in recent months as demand has improved. We expect these more favorable industry fundamentals to continue through at least the first half of 2012, which should help to drive the shares higher. Our target price of $57 implies a multiple of 13.8-times our 2013 EPS estimate, still well below the low end of the historical P/E range. On February 1, BUY-rated NUE closed at $44.82, up $0.33.

5 METHODOLOGY & DISCLAIMERS Report created Feb 2, 2012 Page 5 OF 5 About Argus Argus Research, founded by Economist Harold Dorsey in 1934, has built a top-down, fundamental system that is used by Argus analysts. This six-point system includes Industry Analysis, Growth Analysis, Financial Strength Analysis, Management Assessment, Risk Analysis and Valuation Analysis. Utilizing forecasts from Argus Economist, the Industry Analysis identifies industries expected to perform well over the next one-to-two years. The Growth Analysis generates proprietary estimates for companies under coverage. In the Financial Strength Analysis, analysts study ratios to understand profitability, liquidity and capital structure. During the Management Assessment, analysts meet with and familiarize themselves with the processes of corporate management teams. Quantitative trends and qualitative threats are assessed under the Risk Analysis. And finally, Argus Valuation Analysis model integrates a historical ratio matrix, discounted cash flow modeling, and peer comparison. THE ARGUS RESEARCH RATING SYSTEM Argus uses three ratings for stocks: BUY, HOLD, and SELL. Stocks are rated relative to a benchmark, the S&P 500. A BUY-rated stock is expected to outperform the S&P 500 on a risk-adjusted basis over a 12-month period. To make this determination, Argus Analysts set target prices, use beta as the measure of risk, and compare expected risk-adjusted stock returns to the S&P 500 forecasts set by the Argus Strategist. A HOLD-rated stock is expected to perform in line with the S&P 500. A SELL-rated stock is expected to underperform the S&P 500. Argus Research Disclaimer Argus Research is an independent investment research provider and is not a member of the FINRA or the SIPC. Argus Research is not a registered broker dealer and does not have investment banking operations. The Argus trademark, service mark and logo are the intellectual property of Argus Group Inc. The information contained in this research report is produced and copyrighted by Argus, and any unauthorized use, duplication, redistribution or disclosure is prohibited by law and can result in prosecution. The content of this report may be derived from Argus research reports, notes, or analyses. The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Argus makes no representation as to their timeliness, accuracy or completeness or for their fitness for any particular purpose. This report is not an offer to sell or a solicitation of an offer to buy any security. The information and material presented in this report are for general information only and do not specifically address individual investment objectives, financial situations or the particular needs of any specific person who may receive this report. Investing in any security or investment strategies discussed may not be suitable for you and it is recommended that you consult an independent investment advisor. Nothing in this report constitutes individual investment, legal or tax advice. Argus may issue or may have issued other reports that are inconsistent with or may reach different conclusions than those represented in this report, and all opinions are reflective of judgments made on the original date of publication. Argus is under no obligation to ensure that other reports are brought to the attention of any recipient of this report. Argus shall accept no liability for any loss arising from the use of this report, nor shall Argus treat all recipients of this report as customers simply by virtue of their receipt of this material. Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance. Argus has provided independent research since Argus officers, employees, agents and/or affiliates may have positions in stocks discussed in this report. No Argus officers, employees, agents and/or affiliates may serve as officers or directors of covered companies, or may own more than one percent of a covered company s stock. Morningstar Disclaimer 2012 Morningstar, Inc. All Rights Reserved. Certain financial information included in this report: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.