Nucor Corporation (NUE), Harsco Corporation (HSC): Misunderstood Services Provider Riding on Increase In Steel Production

Peer comparison

TMS International’s peers include Harsco Corporation (NYSE:HSC) Corporation and Nucor Corporation (NYSE:NUE). Harsco Corporation (NYSE:HSC) is a diversified, multinational provider of industrial services and engineered products. Nucor Corporation (NYSE:NUE) is a manufacturer of steel and steel products. TMS International trades at 12 times forward P/E, representing a significant discount to its peers. Harsco Corporation (NYSE:HSC) and Nucor are valued by the market at 19-21 times forward P/E. The same is true when the P/B ratio is used. TMS International trades at a P/B of 1.7; while Nucor Corporation (NYSE:NUE) and Harsco Corporation (NYSE:HSC) are trading at 1.9 and 2.5 times P/B, respectively. This undervaluation is unwarranted, given that TMS International delivered a ROE of 9.0% for the trailing twelve months. In contrast, Harsco Corporation (NYSE:HSC) is loss-making for the last twelve months and Nucor Corporation (NYSE:NUE) achieved a trailing twelve months ROE of 6.7%. TMS International and Harsco Corporation (NYSE:HSC) are similarly highly geared with gross debt-to-equity ratios above 100%; while Nucor Corporation (NYSE:NUE) is moderately leveraged with a gearing of 48%. Unlike Nucor Corporation (NYSE:NUE) and Harsco which both sport a 3% dividend yield, TMS International does not pay a dividend.

Conclusion

Despite not paying a dividend, TMS International does not deserve to trade at such a significant discount to its peers, given the fact that it delivered a decent trailing twelve months 9% ROE and is less affected by volatile steel prices.

The article Misunderstood Services Provider Riding on Increase In Steel Production originally appeared on Fool.com is written by Mark Lin.

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