Reliance Steel (RS) Gains on Demand Strength, Acquisitions
Reliance Steel & Aluminum Co. RS is benefiting from strong demand across key end-use markets, a diversified product base and strategic acquisitions amid headwinds from weak pricing.
Shares of Reliance Steel have gained 47.3% in the past year compared with 20.4% rise of the industry.
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Reliance Steel is gaining from strong underlying demand in its major markets. 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.
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.
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.
Moreover, RS 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.
However, the company continued to face pricing pressure as witnessed in the second quarter. The second-quarter average selling price per ton sold declined 19% from the year-ago quarter. Reliance Steel expects average selling price per ton sold to be down 2-4% sequentially in the third quarter factoring in lower prices for flat-rolled products as well as carbon steel tubing products. Lower selling prices are expected to affect its third-quarter performance.
Lower sequential shipments are also expected to impact the company top line in the third quarter. Reliance Steel expects a 2-4% decline in tons sold in the third quarter from the second quarter. The decline is expected to be driven by planned customer shutdowns and vacations schedules as well as one less shipping day.
Stocks to Consider
Better-ranked stocks worth a look in the basic materials space include Carpenter Technology Corporation CRS, Hawkins, Inc. HWKN and Alamos Gold Inc. AGI.
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 100% over the past 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.
Alamos Gold currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for AGI's current-year earnings has been revised 7.5% upward over the past 60 days.
The Zacks Consensus Estimate for current fiscal-year earnings for Alamos Gold is currently pegged at 43 cents, implying year-over-year growth of 53.6%. AGI shares have surged around 61% in a year.
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