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Why Should You Add Reliance Steel (RS) to Your Portfolio?

Zacks Equity Research

Reliance Steel & Aluminum Co.'s RS stock looks promising at the moment. The company is gaining from its focus on high-margin products, strong demand across aerospace and automotive end-markets and strategic acquisitions.

Reliance Steel currently has a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities for investors. You can see the complete list of today’s Zacks #1 Rank stocks here.

Let's see what makes this metals service center company an attractive investment option at the moment.

Price Performance

Reliance Steel has outperformed the industry it belongs to year to date. The company’s shares have gained 23.2% compared with roughly 6.8% rise recorded by the industry.



 

Estimates Going Up

Earnings estimate revisions have the greatest impact on stock prices. Estimates for 2019 for Reliance Steel have moved north over the past two months. Over this period, the Zacks Consensus Estimate for the year has moved up around 5.1%. The Zacks Consensus Estimate for 2020 has also increased roughly 2.3% over the same timeframe.

Strong End-Market Demand, Favorable Pricing

Reliance Steel is seeing demand strength across aerospace and automotive markets. Order backlog in aerospace remains strong. The company is witnessing strong demand for its heat-treated aluminum products in this market. 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 is seeing healthy demand for its processing services in this market and 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 first-quarter 2019 call, said that it is optimistic about business conditions for the second quarter. It expects steady demand and pricing in the quarter.

Reliance Steel is benefiting from a favorable metal pricing environment. The company’s average selling prices increased 14% year over year in the first quarter, proving a boost to its sales and profits. It witnessed higher year-over-year pricing for all of its major commodities. Section 232 trade actions on imported steel, mill price hikes and steady demand led to higher metal pricing in the quarter. Favorable pricing will likely continue to support the company’s results.

Synergies of Acquisitions

Reliance Steel continues with its aggressive acquisition strategy to tap growth opportunities. With the takeover of Metals USA, the company has added about 48 service centers throughout the United States. Moreover, the acquisition of Best Manufacturing Inc. highly complements the company's service center network with specialty high-margin products, strong focus on customer service and value-added processing capabilities.

The buyout of DuBose Energy and DuBose Fasteners is also in sync with the company’s strategy to purchase niche businesses that offer specialty products with high levels of value-added processing capabilities at attractive returns.

Moreover, the purchase of All Metals Holding complements Reliance Steel’s growth strategy and meets its criteria of buying high quality businesses that are immediately accretive to its earnings. All Metals’ focus on high return, toll processing and logistics services further bolsters Reliance Steel’s solid position in these areas.

Superior Return on Equity (ROE)

ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12-months for Reliance Steel is 13.7%, above the industry’s level of 8.1%.

Reliance Steel & Aluminum Co. Price and Consensus

 

Reliance Steel & Aluminum Co. Price and Consensus

Reliance Steel & Aluminum Co. price-consensus-chart | Reliance Steel & Aluminum Co. Quote

Other Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include Materion Corporation MTRN, Air Products and Chemicals, Inc. APD and Innospec Inc. IOSP.

Materion has an expected earnings growth rate of 23.1% for the current year and carries a Zacks Rank #1. The company’s shares have gained around 16% over the past year.

Air Products has an expected earnings growth rate of 10.3% for the current fiscal year and carries a Zacks Rank #2. Its shares have gained around 24% in the past year.

Innospec has an expected earnings growth rate of 6.6% for the current year and carries a Zacks Rank #2. Its shares are up roughly 8% in the past year.

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