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Reliance Steel (RS) at 52-Week Low: What's Weighing on It?

Zacks Equity Research

Shares of Reliance Steel & Aluminum Co. RS slipped to a 52-week low of $50.08 yesterday, before recovering to close the day higher at $51.75. The stock is down around 11% year-to-date and roughly 8% over a month.

Factors to Consider

Reliance Steel’s profit for third-quarter 2015 tumbled year over year, hurt by lower metals pricing. Adjusted earnings for the quarter beat the Zacks Consensus Estimate while sales missed expectations. The company saw pricing pressure due to high levels of metal imports in the quarter. It sees overall sales volumes to decline sequentially in the fourth quarter.

While Reliance Steel is benefiting from its strategic acquisitions and is seeing healthy demand for its products across aerospace and automotive markets, it continues to be challenged by weak steel industry fundamentals and soft steel and metals pricing. The U.S. steel industry has been hit hard by high levels of imports of cheaper steel products. The steel industry also remains affected by overcapacity which continues to outpace demand.

Moreover, the company is still experiencing a weak pricing trend for most of the metals it sells. Prices for carbon steel products are expected remain soft in the near term. Excessive imports are keeping prices for flat roll and plate under pressure. Reliance Steel anticipates lower metals pricing for most of its products in the final quarter of 2015.

In addition, the non-residential construction market – Reliance Steel’s biggest end-market – continues to be a weak link. While there has been some recovery of late, demand still remains significantly below the peak levels achieved in 2006. In addition, the company’s business in the energy markets is expected to remain under pressure in the near term due to weak oil pricing.

Reliance Steel is a Zacks Rank #5 (Strong Sell) stock.

Stocks to Consider
 
Better-ranked companies in the basic materials space include Grupo Simec S.A.B. de C.V. SIM, Coeur Mining, Inc. CDE and Denison Mines Corp. DNN, all retaining a Zacks Rank #2 (Buy).

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