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Commercial Metals (CMC) Rides on Solid Construction Demand

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·5 min read
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On Mar 23, we issued an updated research report on Commercial Metals Company CMC. The company is poised to gain from solid steel demand rising from the robust construction and infrastructure activities. Moreover, growing manufacturing activities in Poland and Germany will aid growth.

Recently, the company reported second-quarter fiscal 2021 adjusted earnings per share of 66 cents, beating the Zacks Consensus Estimate of 61 cents. The figure increased 24.5% year on year. Net sales of $1,462 million also improved 9% year over year but missed the consensus mark of $1,516 million.

Solid Construction Demand Bodes Well

Commercial Metals projects solid demand for steel products in fiscal 2021, prompted by the elevated spending in the residential and construction sectors in North America, continued recovery in the manufacturing sector, and strong highway infrastructure activities. These are translating into encouraging rebar demand and improved long product steel demand, which bodes well for Commercial Metals. Moreover, the company believes the finished steel volumes for North America and Europe operations will follow strong seasonal trends in third-quarter fiscal 2021 owing to the commencement of the spring and summer construction seasons.

Solid construction backlog in North America will support shipments of finished steel products and downstream products in the near term. Volumes in Europe are anticipated to be healthy on the increasing demand from the construction and industrial end markets. These are driving demand for merchant and wire rod products in the Central European markets. Apart from this, manufacturing activities in Poland and Germany have been expanding since July. These factors position the company well for near-term growth.

Investments in Mill Expansion to Spur Growth

Commercial Metals expects annual capital expenditure to lie between $200 million and $225 million for fiscal 2021. The company is on track to complete the construction of the third rolling mill in Poland, which will begin commissioning in the fiscal third quarter. Once fully operational, this mill is anticipated to generate incremental annual EBITDA of $20 million. The company will utilize the excess mill capacity to increase the finished product output by roughly 200,000 tons. Along with this, Commercial Metals continues to gain from its ongoing network optimization efforts, which will yield additional margin and reduce costs in the near future. Additionally, the company progressing well with construction of a third micro mill in Arizona, which will be the world's first mill to produce merchant bar quality (MBQ) steel products.

Cost-Cutting Actions to Aid Margin

Commercial Metals is implementing price rise across its mill products in response to the rapidly-rising scrap costs. Management anticipates that its capacity-curtailment initiative at the West Coast fabrication facility to support the company’s network-optimization efforts will provide cost benefits in the near term. This January, the company closed its Steel California operations and transitioned the supply chain for the California market to lower-cost material produced in the Central and East regions. Management expects to realize cost benefits from this mill closure during the fiscal third quarter. Moreover, the company’s solid liquidity, financial position and focus on reducing debt will stoke growth.

Price Performance

Commercial Metals’ shares have gained 99.9% in the past year, compared to the industry’s growth of 143.7%.

Zacks Rank & Other Stocks to Consider

Commercial Metals currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Other top-ranked stocks in the basic materials space include Impala Platinum Holdings Limited IMPUY, Fortescue Metals Group Limited FSUGY and Ashland Global Holdings Inc. ASH, all sporting a Zacks Rank #1, at present.

Impala Platinum has an expected earnings growth rate of 195.9% for the current fiscal year. The company’s shares have surged 84% in the past year.

Fortescue has a projected earnings growth rate of 84.3% for the current fiscal year. The company’s shares have soared 182% in a year’s time.

Ashland has an estimated earnings growth rate of 83.9% for the current fiscal year. The company’s shares have appreciated 109.2% over the past year.

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Ashland Global Holdings Inc. (ASH) : Free Stock Analysis Report

Impala Platinum Holdings Ltd. (IMPUY) : Free Stock Analysis Report

Commercial Metals Company (CMC) : Free Stock Analysis Report

Fortescue Metals Group Ltd. (FSUGY) : Free Stock Analysis Report

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