After Reliance Steel & Aluminum Co.’s (NYSE:RS) earnings announcement on 31 December 2018, analyst consensus outlook seem pessimistic, with profits predicted to drop by -6.0% next year relative to the past 5-year average growth rate of 18%. Presently, with latest-twelve-month earnings at US$634m, we should see this fall to US$596m by 2020. I will provide a brief commentary around the figures and analyst expectations in the near term. For those interested in more of an analysis of the company, you can research its fundamentals here.
Exciting times ahead?
The 9 analysts covering RS view its longer term outlook with a negative sentiment. Broker analysts tend to forecast up to three years ahead due to a lack of clarity around the business trajectory beyond this. I’ve plotted out each year’s earnings expectations and inserted a line of best fit to calculate an annual growth rate from the slope in order to understand the overall trajectory of RS’s earnings growth over these next few years.
This results in an annual growth rate of -4.8% based on the most recent earnings level of US$634m to the final forecast of US$575m by 2022. This leads to an EPS of $8.47 in the final year of projections relative to the current EPS of $8.85. The main reason for RS’s earnings contraction is a reduction in the top line of -0.9%, squeezing the bottom line. With earnings declining at a faster rate over time, margins is expected to contract from 5.5% to 5.2% by the end of 2022.
Future outlook is only one aspect when you’re building an investment case for a stock. For Reliance Steel & Aluminum, there are three important aspects you should further research:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is Reliance Steel & Aluminum worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether Reliance Steel & Aluminum is currently mispriced by the market.
- Other High-Growth Alternatives : Are there other high-growth stocks you could be holding instead of Reliance Steel & Aluminum? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.