Have you been paying attention to shares of Commercial Metals (CMC)? Shares have been on the move with the stock up 11.6% over the past month. The stock hit a new 52-week high of $49.69 in the previous session. Commercial Metals has gained 35.2% since the start of the year compared to the 0.6% move for the Zacks Basic Materials sector and the 6% return for the Zacks Steel - Producers industry.
What's Driving the Outperformance?
The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on October 13, 2022, Commercial Metals reported EPS of $2.45 versus consensus estimate of $2.23 while it beat the consensus revenue estimate by 1.07%.
For the current fiscal year, Commercial Metals is expected to post earnings of $6.85 per share on $8.02 billion in revenues. This represents a -16.36% change in EPS on a -9.99% change in revenues. For the next fiscal year, the company is expected to earn $4 per share on $7.48 billion in revenues. This represents a year-over-year change of -41.61% and -6.81%, respectively.
Commercial Metals may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.
On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.
Commercial Metals has a Value Score of B. The stock's Growth and Momentum Scores are B and F, respectively, giving the company a VGM Score of B.
In terms of its value breakdown, the stock currently trades at 7.2X current fiscal year EPS estimates, which is a premium to the peer industry average of 3.9X. On a trailing cash flow basis, the stock currently trades at 5X versus its peer group's average of 2.4X. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.
We also need to look at the Zacks Rank for the stock, as this supersedes any trend on the style score front. Fortunately, Commercial Metals currently has a Zacks Rank of #1 (Strong Buy) thanks to rising earnings estimates.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Commercial Metals meets the list of requirements. Thus, it seems as though Commercial Metals shares could have potential in the weeks and months to come.
How Does CMC Stack Up to the Competition?
Shares of CMC have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is Steel Dynamics, Inc. (STLD). STLD has a Zacks Rank of # 1 (Strong Buy) and a Value Score of A, a Growth Score of B, and a Momentum Score of C.
Earnings were strong last quarter. Steel Dynamics, Inc. beat our consensus estimate by 9.86%, and for the current fiscal year, STLD is expected to post earnings of $10 per share on revenue of $21.82 billion.
Shares of Steel Dynamics, Inc. have gained 14.8% over the past month, and currently trade at a forward P/E of 4.8X and a P/CF of 5.68X.
The Steel - Producers industry may rank in the bottom 77% of all the industries we have in our universe, but there still looks like there are some nice tailwinds for CMC and STLD, even beyond their own solid fundamental situation.
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