Why You Should Retain 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 cost inflation.
Shares of Reliance Steel have shot up 52% in the past year compared with 12.8% rise of the industry.
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Let’s find out why this Zacks Rank #3 (Hold) stock is worth retaining at the moment.
Strong Demand, Acquisitions Aid Reliance Steel
Reliance Steel is benefiting from strong underlying demand in its major markets. It envisions healthy demand to continue in the second quarter of 2023.
Demand in non-residential construction, the company’s biggest market, improved in the first quarter. The company is optimistic that demand for non-residential construction activity in the areas in which it operates will remain at healthy levels in the second quarter.
Reliance Steel also witnessed higher year over year demand in the semiconductors market in the first quarter. RS expects the semiconductor market to remain strong and its long-term outlook for semiconductor demand remains favorable.
Demand across the broader manufacturing sectors that it serves improved modestly and the company sees stable demand in the second quarter. Demand in energy (oil and natural gas) improved year over year in the first quarter and the company is cautiously optimistic that demand will remain steady in the second quarter.
Reliance Steel saw increased demand for the toll processing services that it provides to the automotive market and expects demand to increase in the second quarter. Additionally, demand in commercial aerospace improved during the first quarter and the company is cautiously optimistic that demand will continue to improve in the second 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.
Higher Costs & Pricing Pressure Ail
The company is exposed to cost inflation. It is witnessing higher fuel, freight and labor costs. Its selling, general and administrative expenses went up around 6.4% year over year in the first quarter. RS is expected to continue to face headwinds from inflationary pressure in the second quarter.
Reliance Steel also continued to face pricing pressure in the first quarter. The first-quarter average selling price per ton sold declined 6.3% from the fourth quarter of 2022, mainly due to shifts in product mix. It also fell 17.7% year over year. RS anticipates its average selling price per ton sold to be flat to up 2% sequentially in the second quarter. However, lower year-over-year selling prices are expected to affect its second-quarter performance.
Reliance Steel & Aluminum Co. Price and Consensus
Reliance Steel & Aluminum Co. price-consensus-chart | Reliance Steel & Aluminum Co. Quote
Stocks to Consider
Better-ranked stocks worth considering in the basic materials space include L.B. Foster Company FSTR, Gold Fields Limited GFI, and Linde plc LIN.
L.B. Foster currently carries a Zacks Rank #1 (Strong Buy). The Zacks Consensus Estimate for FSTR's current-year earnings has been stable over the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.
L.B. Foster’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 140.5%, on average. FSTR has gained around 5% in a year.
Gold Fields currently carries a Zacks Rank #1. The Zacks Consensus Estimate for GFI’s current-year earnings has been revised 4% upward in the past 60 days.
The consensus estimate for current-year earnings for GFI is currently pegged at $1.05, reflecting an expected year-over-year growth of 8.3%. Gold Fields’ shares have rallied roughly 53% in the past year.
Linde currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for LIN’s current-year earnings has been revised 4.4% upward in the past 60 days.
Linde beat Zacks Consensus Estimate in each of the last four quarters. It delivered a trailing four-quarter earnings surprise of 6.9% on average. LIN’s shares have gained roughly 24% in the past year.
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Reliance Steel & Aluminum Co. (RS) : Free Stock Analysis Report
Gold Fields Limited (GFI) : Free Stock Analysis Report
L.B. Foster Company (FSTR) : Free Stock Analysis Report
Linde PLC (LIN) : Free Stock Analysis Report
