Here's Why It's Worth Investing in Commercial Metals Stock Now
Commercial Metals Company CMC looks promising at the moment, on robust key end markets, acquisitions and growth in the United States and Poland. We are optimistic about the company’s prospects and believe, this is the right time to add the stock to your portfolio as it is poised to carry the bullish momentum ahead.
Shares of the company have gained 21.9% over the past year as against the industry’s decline of 28.8%.
The company currently carries a Zacks Rank #2 (Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy) 2 or 3 (Hold), offer the best investment opportunities.
Let's delve deeper into the factors that make Commercial Metals stock a compelling investment option at the moment.
Earnings Top Estimates in Q1
Commercial Metals’ first-quarter fiscal 2020 earnings beat the Zacks Consensus Estimate and increased year over year. The company’s impressive results were aided by continued growth in the U.S. non-residential construction sector, which contributed to solid performances in the Americas Mills and Fabrication segments.
Positive Earnings Surprise History
Commercial Metals outpaced the Zacks Consensus Estimate in all of the trailing four quarters, the average beat being 15.3%.
Northbound Estimates
Annual estimates for Commercial Metals’ earnings per share moved north in the past 30 days, reflecting analysts’ confidence in the stock. The Zacks Consensus Estimate for fiscal 2020 earnings per share is pegged at $2.51, suggesting 20.7% year-over-year growth. The company has an estimated long-term earnings growth rate of 3.8%.
Return on Assets (ROA)
Commercial Metals currently has a Return on Assets (ROA) of 7.8%, while the industry average is 1.3%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
Return on Equity (ROE)
Commercial Metals’ trailing 12-month ROE of 18.4% reinforces its growth potential. The company’s ROE is higher than the ROE of 2.8% for the industry, highlighting its efficiency in utilizing shareholders’ funds.
Growth Drivers in Place
Spending in construction activity in the United States continues to flare up, thanks to spending in state and local highway projects. This will likely 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, while the recent rebound in ferrous scrap prices is anticipated to benefit the Americas Recycling business.
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.
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.
Other Stocks to Consider
A few other top-ranked stocks in the basic materials space are Daqo New Energy Corp DQ, Sibanye Gold Limited SBGL and Impala Platinum Holdings Limited IMPUY, each currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Daqo New Energy has an expected long-term earnings growth rate of 29%. The company’s shares have surged 114.8% in the past year.
Sibanye has a projected long-term earnings growth rate of 20.4%. Its shares have soared 197.2% over the past year.
Impala Platinum has an estimated long-term earnings growth rate of 26.5%. The company’s shares have appreciated a whopping 200.8% in a year’s time.
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