Reasons to Hold Commercial Metals (CMC) in Your Portfolio Now
Commercial Metals Company CMC is benefitting from robust demand in North America for each of its major product lines. This is impressive, given the headwinds arising from market volatility and weather-related shipment interruptions.
Moreover, growth in the construction markets in the United States and Europe, and favorable market conditions in Poland bode well for Commercial Metals. Investment in capacity and acquisitions will also drive growth.
CMC currently has a Zacks Rank #3 (Hold) and a VGM Score of A.
Let’s delve deeper and analyze the factors that make this stock worth holding on to at present.
Upbeat Q3 Outlook: The company expects a sequential improvement in core EBITDA in the third quarter of fiscal 2023. Moreover, North America finished steel product shipments are anticipated to improve due to normal seasonality, the recovery of volumes delayed by weather disruptions and the support of a historically high downstream backlog.
In Europe, CMC anticipates seasonal improvement. It also expects shipment levels to remain above the long-term historical average due to the enhanced production capabilities of the company’s facilities.
Positive Earnings Surprise History: CMC has an average trailing four-quarter earnings surprise of 10.4%.
Price Performance: Commercial Metals’ shares have gained 26.7% in the past year against the industry’s fall of 23.9%.
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Solid Demand & Pricing Actions: Robust demand in North America for each of Commercial Metals’ major product lines is expected to reflect in the company’s results. Its North America contract backlog volumes and average pricing are at historically high levels.
Downstream bidding activity remains strong, indicating a strong pipeline of projects entering the market. Commercial Metals is also implementing price rises across its mill products in response to rapidly rising scrap costs, which will sustain margins.
Impressive Strategic Actions: Commercial Metals will benefit from the Infrastructure Investment and Jobs Act signed in November 2021, which will provide $1.2 trillion in funding over five years. It is expected to stimulate an estimated 1.5 million tons of incremental annual rebar demand at a full run rate.
The commissioning of the Arizona 2 micro mill and the addition of Tensar's engineered solutions capabilities will provide the company with greater flexibility to capitalize on these favorable demand conditions.
Even though the economic environment remains challenging in Europe, the flexibility of the company’s operations in Poland and its low-cost operating structure relative to peers will help it navigate.
Solid Balance Sheet: Commercial Metals’ total liquidity reached $1.5 billion as of Feb 28, 2023. The company ended the second quarter of fiscal 2023 with cash and cash equivalents of $673 million. Its strong liquidity, financial position and focus on reducing debt by strategic capital allocation approach will stoke growth.
Recent Acquisitions: In November 2022, Commercial Metals completed the acquisition of a Galveston area metals recycling facility and related assets from Kodiak Resources, Inc. and Kodiak Properties, L.L.C.
The acquired operation annually processes around 55,000 tons of ferrous and non-ferrous materials, with the majority of volumes related to obsolete ferrous scrap grades consumed by Commercial Metals’ long product mills. The buyout enhances the security and supply of competitively priced inputs to the company’s steelmaking operations.
In September 2022, the company acquired Advanced Steel Recovery, LLC (ASR), a leading supplier of recycled ferrous metals located in Southern California. This supports the company's strategic expansion plans in the Western United States.
Near-Term Concerns
The company continues to bear the brunt of higher scrap margins on steel products in North America and Europe. Moreover, uncertainty related to scrap prices may impact the company’s results in the near term until the situation stabilizes.
Oversupply in the steel industry has been a perennial problem. Global steelmaking capacity exceeds demand for steel products in some regions globally. Steel manufacturers in these countries have traditionally periodically exported steel at prices significantly below their home market prices.
Excessive imports of steel into the United States continue to exert downward pressure on U.S. steel prices. Moreover, the long product steel market in Europe is expected to be challenged due to elevated import levels.
Stocks to Consider
Some better-ranked stocks in the basic materials space are Piedmont Lithium Inc. PLL, Franco-Nevada FNV and Gold Fields Limited GFI. PLL and FNV currently flaunt a Zacks Rank #1 (Strong Buy), and GFI carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Piedmont Lithium’s earnings per share is pegged at $6.29 for 2023. Earnings estimates have been revised 62.9% upward in the past 60 days. PLL has gained 26.5% in a year.
The Zacks Consensus Estimate for Franco-Nevada’s fiscal 2023 earnings per share is pegged at $3.51. Earnings estimates have moved 9.3% north in the past 60 days. FNV has a trailing four-quarter earnings surprise of 2.8%, on average. Its shares have gained 3.4% in the past year.
The Zacks Consensus Estimate for Gold Fields’ fiscal 2023 earnings per share is pegged at $1.01. Earnings estimates have moved 6.3% north in the past 60 days. GFI’s shares have gained 65.7% in the past year.
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Piedmont Lithium Inc. (PLL) : Free Stock Analysis Report
Gold Fields Limited (GFI) : Free Stock Analysis Report
Commercial Metals Company (CMC) : Free Stock Analysis Report
Franco-Nevada Corporation (FNV) : Free Stock Analysis Report
