Reliance Steel & Aluminum Co. RS is benefiting from strong demand across key end-use markets, a diversified product base and strategic acquisitions. Shares of the company have risen 24.8% in the past year.
We are optimistic about its prospects and believe that the time is right to add the stock to the portfolio as it looks poised to carry the momentum ahead.
Reliance Steel currently has a Zacks Rank #1 (Strong Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 or 2 (Buy), offer the best investment opportunities for investors.
Let’s delve deeper into the factors that make this metals service center company an attractive choice for investors.
Northbound Estimates
Over the past three months, the Zacks Consensus Estimate for earnings for 2022 has increased 11.11%. The consensus estimate for fourth-quarter 2021 earnings has also been revised 10.4% upward over the same time frame. The favorable estimate revisions instill investor confidence in the stock.
Positive Earnings Surprise History
Reliance Steel’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average being 4.4%.
Upbeat Prospects
Demand in non-residential construction, which is Reliance Steel’s biggest end-market, has gradually expanded and is nearing the pre-pandemic levels. Demand in this market is expected to remain healthy on solid bidding activity. RS expects demand in this market to continue improving on the back of a solid quoting activity, favorable customer sentiments and industry indicators.
Reliance Steel is also witnessing strength across semiconductors and improved demand in the energy market. It remains optimistic about the business environment and sees robust or recovering demand in most of its end markets.
RS has been following an aggressive acquisition strategy for a while as part of its core business policy to drive operating results. Its latest acquisitions of Rotax Metals, a metals service center specializing in copper, bronze and brass alloys, Admiral Metals, a leading distributor of non-ferrous metal products in the North-Eastern United States, and Nu-Tech Precision Metals Inc., a custom manufacturer of specialty extruded metals, fabricated parts and welded components, are in sync with its strategy of investing in high-quality businesses.
Rotax Metals diversifies its products by widening its portfolio of specialty bronze, brass and copper products. Massachusetts-based Admiral Metals’ strong reputation in the metal industry with high levels of customer service and next-day delivery flexibility promises to further solidify RS’ position.
Nu-Tech’s reputation in the key markets that it serves through its proprietary processes and quality certifications and its support for Reliance Steel’s customer, product and geographical diversification strategies make it a solid choice. RS anticipates the acquisition to aid its growth in the nuclear, aerospace and other industries.
Reliance Steel’s acquisition of Merfish United also provides it with an exposure to copper and plastic products, and positions it in the broader industrial arena, which will springboard further growth, both organically and through other lucrative acquisitions.
Higher metals prices are also driving RS’s performance and will likely continue supporting its top line and margins. Reliance Steel anticipates its average selling price per ton sold for the fourth quarter of 2021 to rise in the range of 5-7%.
Reliance Steel also remains focused on offering incremental returns to its shareholders. In 2021, its board raised its quarterly cash dividend by 10% to 68.75 cents per share. RS also returned $174.7 million to its stockholders during the third quarter of 2021 through $43.7 million of dividends and share repurchases worth $131 million.
RS also generated cash flow from operations of $142.2 million in the third quarter of 2021 and ended the quarter with $638.4 million of cash. It has adequate liquidity to meet its short-term debt obligations.
Key Picks
Other top-ranked stocks from the basic materials space include Orion Engineered (NYSE:OEC) Carbons OEC, Commercial Metals Company (NYSE:CMC) CMC and AdvanSix (NYSE:ASIX) Inc. ASIX.
Orion flaunts a Zacks Rank of 1 at present. OEC has an expected earnings growth rate of 27.3% for the current year. The consensus estimate for OEC’s current year earnings has been revised 6.7% upward over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
Orion’s bottom line beat the Zacks Consensus Estimate in all the last four quarters. OEC has a trailing four-quarter earnings surprise of 18.24%, on average. OEC has gained 3.3% in a year.
Commercial Metals flaunts a Zacks Rank of 1 at present. CMC has an expected earnings growth rate of 10.5% for the current fiscal year. The consensus estimate for CMC's current fiscal-year earnings has been revised 6.6% upward over the past 60 days.
Commercial Metals’ bottom line beat the Zacks Consensus Estimate in three of the last four quarters while the same missed the mark once. CMC has a trailing four-quarter earnings surprise of 7.4%, on average. CMC has rallied around 60% in a year.
AdvanSix has a projected earnings growth rate of 3.9% for the current year. The Zacks Consensus Estimate for ASIX’s current-year earnings has been revised 1.6% upward in the past 60 days.
AdvanSix’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 46.9%. ASIX has rallied 111.1% in a year. It currently carries a Zacks Rank #2 (Buy).
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