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What Makes Reliance Steel (RS) Stock a Solid Choice Right Now

Zacks Equity Research

Reliance Steel & Aluminum Co.'s RS stock looks promising at the moment. Its shares have shot up around 34% over the past six months. The company is gaining from strong demand in aerospace and automotive end-markets, focus on high-margin products and acquisitions.

Reliance Steel currently has a Zacks Rank #1 (Strong Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 or 2 (Buy), offer the best investment opportunities for investors. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let's see what makes this metals service center company an attractive investment option at the moment.

Price Performance

Reliance Steel has outperformed the industry it belongs to over a year. The company’s shares have surged 69.3% compared with 58% rise recorded by the industry.



 

Estimates Northbound

Earnings estimate revisions have the greatest impact on stock prices. Estimates for 2019 for Reliance Steel have moved up over the past two months. Over this period, the Zacks Consensus Estimate for the year has moved up 5.8%. The Zacks Consensus Estimate for 2020 has also increased 5% over the same timeframe.

Positive Earnings Surprise History

Reliance Steel has outpaced the Zacks Consensus Estimate in three of the trailing four quarters. In this timeframe, the company has delivered a positive average earnings surprise of 1.6%.

Superior Return on Equity (ROE)

ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12-months for Reliance Steel is 12.5%, above the industry’s level of 2.7%.

Growth Drivers in Place

Reliance Steel is seeing strength in the aerospace and automotive markets. The company is witnessing 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.
Moreover, demand in the non-residential construction end-market was also stronger than what the company had anticipated in the third quarter. Strong demand in this market led to higher-than-expected shipments in the quarter.

The company, in its third-quarter call, noted that it is optimistic about business conditions in 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.

Reliance Steel also continues with its aggressive acquisition strategy to tap growth opportunities. In particular, the buyout of All Metals Holding complements Reliance Steel’s growth strategy and meets its criteria of buying high quality businesses that are immediately accretive to its earnings. All Metals’ focus on high return, toll processing and logistics services further bolsters Reliance Steel’s solid position in these areas.

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

Other Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include Kirkland Lake Gold Ltd. KL, Arconic Inc. ARNC and Franco-Nevada Corporation FNV.

Kirkland Lake Gold has projected earnings growth rate of 97.1% for the current year and sports a Zacks Rank #1. The company’s shares have surged around 67% in a year’s time.

Arconic has a projected earnings growth rate of 56.6% for the current year and carries a Zacks Rank #2. The company’s shares have rallied roughly 75% in a year’s time.

Franco-Nevada has estimated earnings growth rate of 45.3% for the current year and carries a Zacks Rank #2. The company’s shares have shot up roughly 37% in a year’s time.

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Franco-Nevada Corporation (FNV) : Free Stock Analysis Report
 
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