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Reliance Steel Scoops Up Sunbelt

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Reliance Steel & Aluminum Co. (RS) continues its acquisition spree as it has purchased Texas-based privately-held Sunbelt Steel Texas, LLC to expand its foothold in the energy space. The terms of the deal were undisclosed.

Sunbelt, which has annual sales of roughly $48 million, distributes special alloy steel bar and heavy-wall tubing products to the oil and gas industry. The entity will operate as a fully-owned unit of Reliance Steel with its current management remaining in place.

The acquisition has allowed Reliance Steel to serve customers across a number of oil and gas well drilling categorieps including vertical, horizontal, directional and deewater drilling applications. The company hopes to leverage Sunbelt’s growing presence in specialty markets.

Reliance Steel continues its expansion initiatives and strategic acquisitions to spur growth. The acquisitions of McKey and National Specialty Alloys (“NSA”), in February and April 2012, respectively, have enabled the company to improve its product offerings and expand into newer markets.

Moreover, the acquisition of all the assets of the Worthington Steel Vonore plant from Worthington Industries Inc. (WOR), in April 2012, has reinforced its foothold in the Southeastern regions of the U.S. In addition, the purchase of the assets of Airport Metals, in July 2012, marked Reliance Steel’s first foray into the Australian market. More recently, the company snapped up Alabama-based steel processor, GH Metal Solutions.

These moves are in sync with Reliance’s philosophy of growing inorganically. The strategic acquisitions are expected to drive growth moving forward through improved product offerings and expansion into new markets.

Reliance Steel continues to evaluate and execute additional growth projects and is well placed to leverage the strong momentum across a number of end markets. However, we are concerned about the non-residential construction market (the company’s largest end market), which continues to be the weakest link.

Reliance Steel currently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.

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