Why You Should Hold Reliance Steel (RS) Stock in Your Portfolio
Reliance Steel & Aluminum Co. RS is gaining from strong demand across key end-use markets, a diversified product base and strategic acquisitions amid certain headwinds, including weak pricing.
Shares of Reliance Steel, a Zacks Rank #3 (Hold) stock, have shot up 51.5% in the past year compared with a 21.3% rise of the industry.
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Strong Demand, Acquisitions Aid RS
Reliance Steel is benefiting from robust underlying demand in its key markets. It anticipates that solid demand will continue in the majority of its end markets in the third quarter of 2023.
Non-residential construction demand grew in the second quarter. Based on current client conditions and backlogs, the company is cautiously hopeful that non-residential building activity in the sectors in which it participates will remain robust in the third quarter.
Commercial aerospace demand remained strong in the second quarter as well. RS anticipates that commercial aerospace demand will strengthen further in the third quarter as build rates increase from 2022 levels. Furthermore, Reliance Steel's aerospace business' military, defense and space segments remained strong, with significant backlogs. The current trend is expected to continue through the third quarter.
Reliance Steel is also experiencing increased demand for toll processing services for the automotive industry. Its position in the automotive industry, together with recent advancements in car production and the continuous trend toward increasing aluminum content, gives the company confidence that demand for its toll processing services will stay robust in the third quarter.
Weak Prices Hurt
In the second quarter, the company faced sustained pricing pressure. The average price per ton sold in the second quarter fell 19% from the year-ago quarter. Reliance Steel anticipates a 2-4% sequential decrease in average selling price per ton sold in the third quarter, owing to lower prices for flat-rolled products and carbon steel tubing products. Lower selling prices are likely to affect the company's third-quarter performance.
Lower sequential shipments are also likely to adversely impact the company's top line in the third quarter. Reliance Steel anticipates a 2-4% decrease in tons sold in the third quarter from the second quarter. The fall is expected to be due to planned client shutdowns and vacations, as well as one fewer shipment day.
Reliance Steel & Aluminum Co. Price and Consensus
Reliance Steel & Aluminum Co. price-consensus-chart | Reliance Steel & Aluminum Co. Quote
Key Picks
Better-ranked stocks in the basic materials space include Carpenter Technology Corporation CRS, The Andersons Inc. ANDE and Hawkins Inc. HWKN.
Carpenter Technology currently carries a Zacks Rank #1 (Strong Buy). The stock has rallied roughly 92.4% in the past year. CRS beat the Zacks Consensus Estimate in three of the last four quarters while meeting in one. It delivered a trailing four-quarter earnings surprise of 9.8%, on average. You can see the complete list of today’s Zacks #1 Rank stocks here.
Andersons currently carries a Zacks Rank #1. The stock has gained roughly 57.1% in the past year. ANDE beat the Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 64.4%, on average.
Hawkins currently carries a Zacks Rank #1. The stock has rallied roughly 53.1% in the past year. HWKN beat the Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 25.6%, on average.
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The Andersons, Inc. (ANDE) : Free Stock Analysis Report
Reliance Steel & Aluminum Co. (RS) : Free Stock Analysis Report
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Hawkins, Inc. (HWKN) : Free Stock Analysis Report
