TimkenSteel Corporation (TMST) and Nucor Corporation (NUE) are two of the largest steel producers in the United States. TMST operates in SBQ Steel Bar, Seamless Mechanical Steel Tubes, and Billets and Value-added Precision Products and Services segments. NUE operates in Steel Mills, Steel Products, and Raw Materials segments.

The steel industry has started the year on a high-growth trajectory driven by rising steel prices amid a supply shortage and growing demand in the domestic and  international markets.

A long-awaited infrastructure spending bill, which is expected to be passed by the Biden administration this year, should further boost the demand for steel. Notably, TMST and NUE, the premier players in the steel industry, are well positioned to capitalize on accelerating demand for automotive steel and construction equipment.

While TMST gained 70% over the past year, NUE returned 48.8%. Regarding their  past three-months’ performance, TMST is the clear winner with 72.4% gains versus NUE’s 12%. But which of these stocks is a better pick now? Let’s find out.

Latest Movements

In January, TMST increased its base pricing on all special bar quality (SBQ) products by $40 per ton. It also recently increased prices on seamless mechanical tubing (SMT) products by $40 per ton. These price increases  should  allow the company to generate greater profit from the  automotive, energy and a variety of other industrial end markets.

In December, TMST appointed Michael S. Williams as the president and chief executive officer of the company. He has also been elected to the board of directors. Given his extensive industry experience and proven track record, TMST believes he is best suited to lead the company into the future.

In February  NUE announced plans to build a third TrueCore 120,000 square foot manufacturing facility in Utah. This will give the company a national footprint and allow it to competitively serve its  customers in the Western U.S. and Canadian markets.

In December, 2020, NUE’s Board of Directors elected Executive Vice President David A. Sumoski as Chief Operating Officer of the company. His leadership skills and strategic thinking should help NUE to generate exceptional results and better serve its customers.

Recent Financial Results

In the fourth quarter ended December 31, 2020, TSMT’s net sales grew 3% sequentially to $211.2 million, driven primarily by a continued rebound in automotive demand. The company reported a gross profit of $14.2 million, compared to a gross loss of $18 million in the prior-year quarter. Its net cash provided by operating activities rose 14.1% year-over-year to $52.5 million, while its cash and cash equivalents increased 279.3% from the year-ago value to $102.8 million.

NUE’s net sales have declined 2.5% year-over-year to $5.13 billion in the fourth quarter, ended December 31, 2020. The company’s net earnings have grown  269.9% from the prior-year quarter to $398.84 million, while its EPS rose 274.3% from the year-ago value to $1.31.

Expected Financial Performance

Analysts expect TMST’s revenue to increase 34.2% in the current year and 8.1% next year. The company’s EPS is expected to grow 149.5% in 2021 and 69.6% next year.

In comparison, analysts expect NUE’s revenue to increase 25.4% in the current year and decline 8.5% next year. The company’s EPS is expected to grow 52.9% in fiscal 2021 and decline 34% next year.

Profitability      

NUE’s trailing-12-month revenue is more than 24 times  TMST’s. Also, NUE is more profitable with a gross profit margin of 11.1% versus TMST’s 1.9%.

However, TMST’s levered free cash flow margin of 20.7% compares favorably with NUE’s 2.5%.

Valuation

In terms of trailing-12-month price/sales, NUE is currently trading at 0.90x, 104.5% higher than TMST, which is currently trading at 0.44x. Also, its trailing-12-month ev/sales of 1.03x is 134.1% higher than TMST’s 0.44x.

So, TMST is the more affordable stock.

POWR Ratings

Both TMST and NUE have an overall rating of B, which equates to a Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

TMST has a Value Grade of B, which is consistent with its lower-than-industry ev/sales. In comparison, NUE has a Value Grade of C.

Also, TMST has a Growth Grade of A, which is consistent with its increase in earnings and revenues over the past year. The expected increase in NUE’s revenues and earnings for 2021 is reflected in its Growth Grade of B.

In terms of Quality Grade, TMST has a B given its higher profitability. NUE’s Quality Grade of C is reflective of its lower profitability.

Of 35 stocks in the A-rated Steel industry, TMST is ranked #12 while NUE is ranked #15.

Beyond what I’ve stated above, our POWR Ratings system also rates both TMST and NUE for Momentum, Stability, and Sentiment. Get all of TMST’s ratings here. Also, click here to see the additional POWR Ratings for NUE.

The Winner

While both TMST and NUE are good long-term investments considering their market dominance and continued expansion, TMST appears to be a better buy based on the factors discussed here.

Even though NUE demonstrated incredible resilience as it navigated macroeconomic headwinds created by the COVID-19 pandemic, we think its lower profitability, weaker earnings outlook and premium valuation make it a riskier investment option compared to TMST.

Our research shows that the odds of success increase if you bet on stocks with an Overall POWR Rating of Buy or Strong Buy. If you’re looking for other top-rated stocks in the Steel industry, click here.

The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.

Want More Great Investing Ideas?

9 “MUST OWN” Growth Stocks for 2021

How to Ride the 2021 Stock Market Bubble

7 Best ETFs for the NEXT Bull Market

5 WINNING Stocks Chart Patterns

NUE shares were trading at $61.89 per share on Tuesday morning, up $0.37 (+0.60%). Year-to-date, NUE has gained 16.36%, versus a 3.66% rise in the benchmark S&P 500 index during the same period.

About the Author: Imon Ghosh

Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...

More Resources for the Stocks in this Article