Reliance Steel (RS) to Buy Merfish for Product Diversification

Reliance Steel & Aluminum Co. RS recently announced a definitive deal to acquire Merfish United, a leading master distributor of tubular building products in the United States, from One Equity Partners, a middle market private equity firm.

The buyout is in sync with Reliance’s strategy of taking over companies that have an immediate accretion coupled with strong management teams. It has also enabled the company to focus on adjoining businesses beyond traditional metal service centers.

Moreover, the acquisition supports the company’s product and geographical diversification strategy, significantly broadening its exposure to copper and plastic products. The Merfish United deal will also help Reliance to create a foothold in the adjacent industrial distribution space, thus gaining a platform for further growth in the area, both organically and through future acquisitions. Merfish United had net sales of around $500 million for the 12 months ended Jun 30, 2021.

The transaction is expected to close in the upcoming 60 days, subject to regulatory approval and customary closing conditions. The current Merfish United team, including management, will remain in place post-closing.

Reliance Steel’s shares have soared 47% over the past year, underperforming the industry’s 78.9% rise. The company’s estimated earnings growth rate for the current year is pegged at 138.9%.

Image Source: Zacks Investment Research

In the second quarter, the company recorded adjusted earnings of $5.06 per share, which increased from $1.36 in the year-ago quarter and also beat the Zacks Consensus Estimate of $4.94. It raked in net sales of $3,418.8 million, which jumped 69.3% year over year and topped the Zacks Consensus Estimate of $3,118.1 million.

Reliance Steel remains optimistic about the business environment and sees robust demand in the majority of its end markets. However, factors such as bottlenecks in metal supply and supply-chain disruptions impacting shipments, which were prevalent in the second quarter, are expected to persist in the third quarter as well. Its estimates its tons sold to be down 1% to up 1% in the third quarter compared with the prior quarter. Moreover, the metal prices at the beginning of the third quarter are higher than the average in the second quarter. Due to this upside, the company anticipates its average selling price per ton sold for the third quarter to go up in the range of 7-9%. The company expects adjusted earnings per share in a band of $5.55 to $5.75 for the third quarter.

Reliance Steel & Aluminum Co. Price and Consensus

Reliance Steel & Aluminum Co. price-consensus-chart | Reliance Steel & Aluminum Co. Quote

Zacks Rank & Other Key Picks

Reliance Steel currently sports a Zacks Rank #1 (Strong Buy).

Other top-ranked stocks in the industrial products space are Mitsui & Co. MITSY, Greif (NYSE:GEF), Inc. GEF and Terex (NYSE:TEX) Corporation TEX, each flaunting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mitsui has a projected earnings growth rate of roughly 328.6% for the current fiscal. The company’s shares have surged 51.9% over the past year.

Greif has an expected earnings growth rate of around 35.7% for the current fiscal. The company’s shares have gained 62.1% over the past year.

Terex has an expected earnings growth rate of 2,207.7% for the current fiscal. The company’s shares have jumped 61.7% over the past year.

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