On Wednesday, Citi upgraded shares of Nucor Corporation (NYSE:NUE) from Neutral to Buy, adjusting the price target to $240 from the previous $180. The upgrade reflects a positive outlook on the company's financial performance and the potential for higher valuation multiples.
Citi's analysis indicates that Nucor's mid-cycle return on invested capital (ROIC), which ranges between 15-20%, could justify a valuation increase of 30-40%. The firm suggests that Nucor could now be valued at 10-12 times EBITDA, compared to the historical average of 6-8 times.
The firm acknowledges Nucor's consistent track record of earnings per share (EPS) growth and positive free cash flow (FCF) generation over the past two decades. These factors contribute to the rationale behind the upgraded rating and increased price target.
However, Citi also identifies a risk factor for Nucor, pointing out the company's concentrated exposure to the non-residential construction sector. This focus could potentially impact the company's performance, depending on market conditions within that industry.
The new price target of $240 implies a significant upside from the previous target, suggesting that Citi expects Nucor's stock to perform well in the market. The upgrade to a Buy rating indicates a shift in perspective on the stock's investment potential.
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