Commercial Metals Rides on Favorable Markets & Acquisition

On Jan 14, we issued an updated research report on Commercial Metals Company CMC. The company is poised to gain from robust key end markets, acquisitions, and growth in the United States and Poland.
 
Recently, the company reported first-quarter fiscal 2020 results. Adjusted earnings per share came in at 73 cents, beating the Zacks Consensus Estimate of 56 cents. The figure also soared 109% year over year. Commercial Metals delivered stellar fiscal first-quarter results driven by continued growth in the U.S. non-residential construction sector, which contributed to strong performances in the Americas Mills and Fabrication segments.

Commercial Metals outpaced the Zacks Consensus Estimate in all of the trailing four quarters, the average positive surprise being 15.3%.

Solid Steel & Rebar Demand Looks Good

Spending in construction activity in the United States continues to flare up thanks to spending in state and local highway projects. This will likely to translate into improved demand for long-product steel and rebar. Construction demand in Poland and the company’s investment in the country poise it well for improved results.

Moreover, solid fabrication backlog and rebar-margin environment will likely drive Commercial Metal’s performance in fiscal 2020. The Americas Recycling business is likely to benefit from the recent rebound in ferrous scrap prices.

Investment to Spur Growth

The company has completed the ramp-up of production volumes at its second micro mill in Durant, OK, with better-than-anticipated returns, supported by robust rebar demand and elevated metal margins. Furthermore, the company’s optimization efforts and expanded domestic mill capacity will yield benefits in the days ahead. Also, Commercial Metals closed the Rancho Cucamonga, CA melting operations. This move will lower the cost of finished rebar from Rancho, while supporting utilization rates at other mills. The company expects capital spending for fiscal 2020 between $160 million and $185 million.

Acquisition Bodes Well

On Nov 5, 2018, the company completed the acquisition of four U.S. rebar steel mills and 33 fabrication facilities from Gerdau S.A., a producer of long and specialty steel products in the Americas for a cash purchase price of $600 million. The buyout added 2.5 million tons of rebar capacity as well as increased fabrication capacity by almost 50%. This gives Commercial Metals dominant share in the U.S. rebar market. Additionally, the company will have an expanded geographic presence in the largest construction regions in the United States.

Capital-Allocation Move to Boost Growth

The company exited the International Marketing and Distribution business, and plans to utilize the proceeds to strengthen its balance sheet as well as invest in core steel manufacturing segments. Also, the company is focused on reducing debt by strategic capital-allocation approach. In the fiscal first quarter, it reduced debt by $51.5 million.

Share Price Performance

Commercial Metals’ shares have appreciated 39.4% over the past year, as against the industry’s decline of 8.6%.

Zacks Rank & Other Stocks to Consider

Commercial Metals currently sports a Zacks Rank #1 (Strong Buy).

A few other top-ranked stocks in the basic materials space are Daqo New Energy Corp DQ, Pan American Silver Corp PAAS and Sibanye Gold Limited SBGL. While Daqo New Energy and Pan American Silver flaunt a Zacks Rank #1, Sibanye Gold carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Daqo New Energy has projected earnings growth rate of a whopping 315.4% for the current year. The company’s shares have surged 117.6% over the past year.

Pan American Silver has an estimated earnings growth rate of 46.3% for the ongoing year. Its shares have appreciated 54.4% in a year’s time.  
 
Sibanye Gold has an outstanding expected earnings growth rate of 587.5% for 2020. The company’s shares have soared 260.8% over the past year.

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