Nomura Lowers Price Target On Nucor As Steel/Scrap Price Correlation Is At Risk

In a report published Thursday, Nomura analyst Curt Woodworth reiterated a Buy rating on

, but lowered the price target from $62.00 to $54.00. In the report, Nomura noted, “We continue to see NUE's earnings mix in the coming years benefitting from accelerating non-res construction markets, a higher contribution of value added products, and raw materials cost (DRI) tailwinds. While Nucor's 1Q-15 guidance of only marginal improvement vs. 1Q-14 implies significant q/q downside, management expects lower scrap values set to materialize in February (market expects a $30-40/ton m/m decline) to result in meaningful metal margin relief starting 2Q- 15. The Louisiana DRI plant won't be operational until late in 1Q-15, resulting in similar losses as 4Q ($35mm) this quarter. After incurring losses of $135mm in 2014, NUE expects the operation to improve through the year, becoming profitable by year-end. We estimate that, at $65/t iron ore and $3.00/mmBtu gas prices, DRI would drive ~$0.60 of EPS at current pig iron prices.” Nucor closed on Wednesday at $44.04.