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Reliance Steel (RS) Up 14% in 6 Months: What's Driving It?

Zacks Equity Research

Shares of Reliance Steel & Aluminum Co. RS have gained around 14% over the past six months. The company has also outperformed its industry’s decline of roughly 6.6% over the same time frame.

Reliance Steel, a Zacks Rank #2 (Buy) stock, has a market cap of roughly $5.8 billion and average volume of shares traded in the last three months was around 453K. The company has an expected long-term earnings per share growth rate of 9%, higher than the industry average of 8.4%.


 

Let’s take a look into the factors that are driving this metals service center company.

Driving Factors

Reliance Steel is benefiting from its focus on high-margin products, strong demand across aerospace and automotive end-markets and strategic acquisitions. The company is also gaining from a favorable metal pricing environment.

Reliance Steel is seeing demand strength across aerospace and automotive markets. Order backlog in aerospace remains strong. The company is witnessing strong demand for its heat-treated aluminum products in this market. It remains committed to boost its market share in aerospace.

Strong demand is also witnessed in the automotive market, backed by increased use of aluminum in the industry. The company is seeing healthy demand for its processing services in this market and remains committed to invest in facilities and value-added processing equipment to address the rising demand for the services it offers.

Favorable metal prices are also supporting the company’s results. Reliance Steel’s average selling prices increased 14% year over year in the first quarter, proving a boost to its sales and profits. It witnessed higher year-over-year pricing for all of its major commodities. Section 232 trade actions on imported steel, mill price hikes and steady demand led to higher metal pricing in the quarter. The company is likely to continue to gain from favorable pricing.

Reliance Steel, in its first-quarter 2019 call, said that it is optimistic about business conditions for the second quarter. It expects steady demand and pricing in the quarter.

Moreover, earnings estimate revisions have the greatest impact on stock prices. Estimates for 2019 for Reliance Steel have moved up over the past three months. Over this period, the Zacks Consensus Estimate for the year has increased around 6.1%. The Zacks Consensus Estimate for second-quarter 2019 has also moved up roughly 3.1% over the same timeframe.

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

Stocks Worth a Look

Stocks worth considering in the basic materials space include Materion Corporation MTRN, Israel Chemicals Ltd. ICL and Innospec Inc. IOSP.

Materion has an expected earnings growth rate of 27.3% for the current year and carries a Zacks Rank #1 (Strong Buy). The company’s shares have gained around 12% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Israel Chemicals has an expected earnings growth rate of 13.5% for the current fiscal year and carries a Zacks Rank #1. Its shares have gained around 9% in the past year.

Innospec has an expected earnings growth rate of 6.6% for the current year and carries a Zacks Rank #2. Its shares are up roughly 5% in the past year.

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Innospec Inc. (IOSP) : Free Stock Analysis Report
 
Israel Chemicals Shs (ICL) : Free Stock Analysis Report
 
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