With the acquisition of C.H.I. Overhead Doors (C.H.I.) for $3 billion, Nucor Corporation (NYSE: NUE) is all set to boost its presence in the construction market. C.H.I. is a specialist in making overhead doors for use in residential and commercial markets.
Per the deal signed with an associate of Kohlberg Kravis Roberts & Co. L.P.-managed investment funds, Nucor will complete the acquisition of C.H.I. next month or in July. The parties are currently waiting for regulatory approvals.
It is worth mentioning that shares of $31.9-billion Nucor declined 3.3% to close at $119.75 on Monday.
Rationale Behind the Acquisition
C.H.I. has a solid presence in the residential and commercial markets of Canada and the United States. It conducts business through five warehouses and two manufacturing units, and an experienced team of 800 people. Product offerings include shoreline, counter shutters, skyline flush, high-performance doors, and other products.
Upon completion, the C.H.I. acquisition would mean enhanced product line, workforce, and manufacturing and distribution capabilities for Nucor. The buyout will also solidify the company’s supply chain and geographical presence.
Meanwhile, Nucor anticipates using its available funds for this buyout. It also predicts the buyout to boost its earnings per share immediately.
Official Comments
Nucor’s President and Chief Executive Officer, Leon Topalian, said, “Acquiring C.H.I. is another step in our long-term strategy to expand into areas that are a natural extension of our business and leverage our efficient manufacturing model. C.H.I. is a highly profitable organization built with an amazing team and culture.”
He added that the buyout will boost Nucor’s “already diverse range of businesses that provide end market solutions to the construction and infrastructure markets.”
Stock Rating
On May 16, 2022, David Gagliano of BMO Capital reiterated a Hold rating on Nucor while lowering the price target to $128 (6.89% upside potential) from $168.
Overall, the Street is cautiously optimistic about Nucor and has a Moderate Buy consensus rating based on two Buys and five Holds. NUE’s price forecast of $155.14 suggests 25.99% upside potential from current levels. Over the past year, shares of Nucor have increased 12.6%.
Risk Analysis
Per the TipRanks Risk Factors tool, Nucor’s main risk categories are Legal & Regulatory and Macro & Political, which contribute four risks each to the total 17 risks identified for the stock.
Conclusion
With the C.H.I. buyout, Nucor will be better positioned to leverage from $5.1 billion worth of addressable markets in North America, especially in the residential section. This section is largely driven by demand stemming from remodeling and repairing activities.
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