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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 headwinds from weak pricing.

Shares of Reliance Steel, a Zacks Rank #3 (Hold) stock, have gained 26.5% in the past year compared with 1.8% decline of the industry.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

Strong Demand, Acquisitions Aid Reliance Steel

Reliance Steel is benefiting from strong underlying demand in its major markets. It expects underlying demand to remain healthy in its end markets in the fourth quarter of 2023.

Demand in non-residential construction, the company’s biggest market, increased in the third quarter of 2023. Based on the current sentiment of customers and existing backlogs, the company maintains an optimistic outlook for the fourth quarter, anticipating that non-residential construction activities in the sectors it operates in will remain healthy, with consideration for the usual seasonal variations.

Commercial aerospace demand also remained strong in the third quarter. Reliance expects commercial aerospace demand to stay healthy in the fourth quarter as build rates grow from current levels. Moreover, demand in the company’s aerospace business's military, defense and space segments remains robust, with substantial backlogs.

Reliance Steel is also seeing higher year-over-year demand for toll processing services for the automobile market. The company’s niche position in providing toll processing services to the automotive market, particularly with the ongoing rise in aluminum usage, instills optimism for long-term demand in this sector.

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. The acquisition of Southern Steel Supply also expands the company’s reach in the Southern United States and boosts its value-added processing services.

Pricing Pressure Ails

The company continued to face pricing pressure in the third quarter. The third-quarter average selling price per ton sold declined 16% from the year-ago quarter. Weaker pricing hurt its sales and bottom line in the quarter. Reliance Steel expects its average selling price per ton sold to decrease 4-6% sequentially in the fourth quarter. Lower selling prices are expected to affect its fourth-quarter performance. RS sees a modest reduction in its gross profit margin in the fourth quarter due to these declining price trends.

Lower sequential shipments are also expected to impact the company top line in the fourth quarter. Reliance Steel expects a 4-6% decline in tons sold in the fourth quarter from the third quarter, in line with typical seasonal patterns.

 

Reliance Steel & Aluminum Co. Price and Consensus

 

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

 

Stocks to Consider

Better-ranked stocks worth a look in the basic materials space include Denison Mines Corp. DNN, Axalta Coating Systems Ltd. AXTA and The Andersons Inc. ANDE.

Denison Mines has a projected earnings growth rate of 100% for the current year. DNN has a trailing four-quarter earnings surprise of roughly 225%, on average. The stock is up around 53% in a year. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, the Zacks Consensus Estimate for Axalta Coating Systems’ current year has been revised upward by 8.2%. AXTA, carrying a Zacks Rank #1, beat the Zacks Consensus Estimate in three of the last four quarters while missing in one quarter, with the average earnings surprise being 6.7%. The company’s shares have gained 16% in the past year.

Andersons currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for ANDE's current-year earnings has been revised 8.6% upward over the past 60 days. Andersons beat the Zacks Consensus Estimate in three of the last four quarters. It delivered a trailing four-quarter earnings surprise of 32.8%, on average. ANDE shares have rallied around 39% in a year.

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The Andersons, Inc. (ANDE) : Free Stock Analysis Report

Reliance Steel & Aluminum Co. (RS) : Free Stock Analysis Report

Denison Mine Corp (DNN) : Free Stock Analysis Report

Axalta Coating Systems Ltd. (AXTA) : Free Stock Analysis Report

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