Reliance Steel (RS) Up 37% YTD: Will the Momentum Continue?
Reliance Steel & Aluminum Co.’s RS shares have popped 37.1% year to date. The rally has resulted in the stock outperforming its industry’s rise of 8.1% over the same time frame. It has also topped the S&P 500’s roughly 14.8% rise over the same period.
Let’s dive into the factors behind this Zacks Rank #3 (Hold) stock’s price appreciation.
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Strong Demand, Acquisitions Drive Reliance Steel
Reliance Steel is gaining from strong underlying demand in its major markets. It envisions healthy demand to continue in most of its end markets in the third quarter of 2023.
Demand in non-residential construction, the company’s biggest market, increased in the second quarter. Based on the current customer state and backlogs, the company remains cautiously optimistic that non-residential construction activity in the sectors in which it participates will continue to be healthy in the third quarter.
Reliance Steel is also seeing higher demand for toll processing services for the automobile market. Its position in the automotive sector, together with recent advances in car production and the ongoing trend to increased aluminum content, gives the company confidence that demand for its toll processing services will remain strong in the third quarter.
Commercial aerospace demand also remained substantial in the second quarter. RS expects commercial aerospace demand to improve further in the third quarter as build rates grow from 2022 levels. Moreover, demand in Reliance Steel's aerospace business's military, defense and space segments remained robust, with substantial backlogs. The trend is projected to continue in the third quarter.
The company has been following an aggressive acquisition strategy for a while as part of its core business policy to drive operating results. The acquisitions of Rotax Metals, Admiral Metals and Nu-Tech Precision Metals are in sync with its strategy of investing in high-quality businesses. The acquisition of Southern Steel Supply also expands the company’s reach in the Southern United States and boosts its value-added processing services.
Reliance Steel also remains committed to boost returns to shareholders. RS returned $132.5 million to its stockholders during the second quarter of 2023 through dividends and the repurchases. It generated $295.1 million in cash flow from operations in the quarter, owing to its strong profitability and good working capital management. Reliance Steel, in Feb 2023, also increased its quarterly dividend by 14.3% to $1.00 per share.
Will the Uptrend in Shares Last?
Reliance Steel is expected to continue to gain from strong demand in key markets in the near term. The healthy demand in non-residential construction, continued strength in commercial aerospace and increased production rates by automotive manufacturers are expected to aid company’s performance in the third quarter. Strong demand and organic and inorganic growth strategies adopted by the company are expected support its performance amid headwinds from weaker selling prices in the quarter.
Reliance Steel & Aluminum Co. Price and Consensus
Reliance Steel & Aluminum Co. price-consensus-chart | Reliance Steel & Aluminum Co. Quote
Stocks to Consider
Better-ranked stocks worth a look in the basic materials space include Carpenter Technology Corporation CRS, Hawkins, Inc. HWKN and PPG Industries, Inc. PPG.
The Zacks Consensus Estimate for current fiscal-year earnings for CRS is currently pegged at $3.48, implying year-over-year growth of 205.3%. Carpenter Technology currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Carpenter Technology has a trailing four-quarter earnings surprise of roughly 10%, on average. The stock has rallied around 71% in a year.
Hawkins currently carrying a Zacks Rank #1. It has a projected earnings growth rate of 18.9% for the current year.
Hawkins has a trailing four-quarter earnings surprise of roughly 25.6%, on average. HWKN shares are up around 51% in a year.
PPG Industries currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for PPG's current-year earnings has been revised 3.6% upward over the past 60 days.
PPG Industries’ earnings beat the Zacks Consensus Estimate in three of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 7.3%, on average. PPG shares have gained around 9% in a year.
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