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Reliance Steel (RS) Up 30% YTD: What's Driving the Rally?

Zacks Equity Research

Shares of Reliance Steel & Aluminum Co.'s RS have popped around 30% so far this year. The company has also significantly outperformed its industry’s rise of roughly 6% over the same time frame.

Reliance Steel, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $6.2 billion and average volume of shares traded in the last three months was around 424.7K. The company has an expected long-term earnings per share growth rate of 9%, above the industry average of 8.4%.


 

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

What’s Going in Reliance Steel's Favor?

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

Reliance Steel is witnessing strong demand in the aerospace and automotive markets. The company is seeing demand strength for its heat-treated aluminum products in the aerospace 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.

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.

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.

Earnings estimates for Reliance Steel are also moving up over the past three months. Over this period, the Zacks Consensus Estimate for 2019 has increased around 5.2%. The Zacks Consensus Estimate for second-quarter 2019 has also moved up roughly 1.9% 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 to Consider

Stocks worth considering in the basic materials space include Materion Corporation MTRN, Flexible Solutions International Inc FSI and Israel Chemicals Ltd. ICL.

Materion has an expected earnings growth rate of 30.3% for the current year and carries a Zacks Rank #1 (Strong Buy). The company’s shares have gained around 17% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Flexible Solutions has an expected earnings growth rate of 342.9% for the current fiscal year and carries a Zacks Rank #1. Its shares have surged around 162% in the past year.

Israel Chemicals has an expected earnings growth rate of 13.5% for the current year and carries a Zacks Rank #1. Its shares are up roughly 12% in the past year.

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