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Reliance Steel (RS) Up 56% in a Year: What's Going in Favor?

Zacks Equity Research

Shares of Reliance Steel & Aluminum Co. RS have surged 55.6% in the past year, outperforming the industry’s rise of roughly 53.7%.

Reliance Steel, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $8 billion. Average volume of shares traded in the past three months was around 502.6K.  The company has expected long-term earnings per share growth of 9%.


 

Let's take a look at the factors that are driving this metals service center company.

Driving Factors

Forecast-topping earnings performance in the first three quarters of 2019, inorganic growth initiatives along with continuing solid demand across key end-markets have contributed to the rally in Reliance Steel's shares.

Reliance Steel has delivered a positive earnings surprise of 1.6%, on average, over the trailing four quarters. It is gaining from sustained demand strength across aerospace and automotive markets, focus on high-margin products, and acquisitions.

The company is seeing healthy demand for heat-treated aluminum products in the aerospace markets. Demand in aerospace was healthy in the third quarter, with strong order backlog. Reliance Steel remains committed to boosting its market share in aerospace.

Further, the company is witnessing strong demand for processing services in the automotive market. It remains committed to investing in facilities and value-added processing equipment to address the rising demand for the services it offers. Healthy demand in the non-residential construction end market provides additional upside.

In its third-quarter earnings call, Reliance Steel noted that it is optimistic about business prospects for the fourth quarter. Excluding the impact of normal seasonal patterns, it expects end demand to stay relatively steady in the fourth quarter compared with the third quarter.

The company projects adjusted earnings per share of $1.60-$1.70 for the fourth quarter. The Zacks Consensus Estimate for earnings for the quarter is currently pegged at $1.70, indicating a 57.4% year-over-year increase.

The company also continues with its aggressive acquisition strategy to tap growth opportunities. Notably, the acquisition of All Metals Holding complements its growth strategy and meets its requirements of buying high-quality businesses, which are immediately accretive to its earnings. All Metals bolsters Reliance Steel’s toll processing and logistics services businesses.

Reliance Steel also recently announced that it has purchased all of the outstanding capital stock of Fry Steel Company. The acquisition is in sync with its business model and strategy of investing in high quality and high margin businesses.

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Reliance Steel & Aluminum Co. Price and Consensus

 

Reliance Steel & Aluminum Co. Price and Consensus
Reliance Steel & Aluminum Co. Price and Consensus

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

Stocks to Consider

Better-ranked stocks worth considering in the basic materials space include Daqo New Energy Corp. DQ, Pan American Silver Corp. PAAS and Sibanye Gold Limited SBGL.  

Daqo New Energy has projected earnings growth rate of 315.4% for 2020 and sports a Zacks Rank #1 (Strong Buy). The company’s shares have rallied roughly 117% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.

Pan American Silver has estimated earnings growth rate of 38.1% for 2020 and carries a Zacks Rank #1. The company’s shares have shot up roughly 51% in a year’s time.

Sibanye Gold has projected earnings growth rate of 587.5% for 2020 and carries a Zacks Rank #2 (Buy). The company’s shares have surged around 246% over a year.

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Reliance Steel & Aluminum Co. (RS) : Free Stock Analysis Report
 
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