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Reliance Steel's (RS) Shares Up 31% YTD: What's Driving It?

Zacks Equity Research

Shares of Reliance Steel & Aluminum Co.'s RS have popped around 31% so far this year. The company has also significantly outperformed its industry’s rise of roughly 17.8% over the same time frame.

Reliance Steel, a Zacks Rank #1 (Strong Buy) stock, has a market cap of roughly $6.2 billion and average volume of shares traded in the last three months was around 438.9K. The company has an expected long-term earnings per share growth rate of 9%, higher than the industry average of 8.4%.


 

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

Driving Factors

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 seeing strong demand in aerospace and automotive markets. Demand in the aerospace market has been driven by higher commercial aerospace build rates. The company is witnessing strong demand for its heat-treated aluminum products. 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 remains committed to invest in facilities and value-added processing equipment to address the rising demand for the services it offers.
 
Reliance Steel, in its fourth-quarter call, said that it is optimistic about business conditions for the first quarter of 2019. It expects demand to be healthy in the first quarter and projects tons sold to be up 6-8% sequentially in the quarter.

The company also expects adjusted earnings per share in the band of $2.35 to $2.45 for the first quarter based on an expected LIFO income and benefits of lower number of total shares outstanding due to share buybacks in 2018.

Reliance Steel also expects price hikes for many of its products based on current demand levels, impact of ongoing trade actions and raw material costs. Reliance Steel’s average selling prices increased 20% year over year in fourth-quarter 2018. Section 232 trade actions on imported steel coupled with strong demand led to higher metal pricing in the quarter. Higher metal pricing also largely helped the company to generate strong gross profit margin in 2018.

Reliance Steel also remains focused on returning value to its shareholders. The company, in February, raised its quarterly dividend by 10% to 55 cents per share.

Moreover, earnings estimate revisions have the greatest impact on stock prices. Estimates for 2019 for Reliance Steel have moved up over the past two months. Over this period, the Zacks Consensus Estimate for the year has increased around 11.5%. The Zacks Consensus Estimate for first-quarter 2019 has also shot up roughly 17.7% over the same timeframe.

Reliance Steel & Aluminum Co. Price and Consensus

 

Reliance Steel & Aluminum Co. Price and Consensus | Reliance Steel & Aluminum Co. Quote

Stocks to Consider

Other stocks worth considering in the basic materials space include Ingevity Corporation NGVT, W. R. Grace & Co. GRA and Israel Chemicals Ltd. ICL.

Ingevity has an expected earnings growth rate of 17.9% for the current year and carries a Zacks Rank #1. Its shares have rallied roughly 48% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

W. R. Grace has an expected earnings growth rate of 10.4% for the current year and carries a Zacks Rank #2 (Buy). Its shares have surged around 24% in the past year.

Israel Chemicals has an expected earnings growth rate of 10.8% for the current year and carries a Zacks Rank #2. The company’s shares have gained around 23% over the past year.  

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