Reliance Steel Raised to Outperform - Analyst Blog
May 21 2012 - 9:30AM
Zacks
We are upgrading our recommendation
on Reliance Steel & Aluminum Co. (RS) to
Outperform following its solid first-quarter 2012 results. Earnings
of $1.54 per share topped the Zacks Consensus Estimate of $1.50.
The company saw healthy double-digit growth in sales (up 20% year
over year to $2,288.3 million), which beat the Zacks Consensus
Estimate of $2,139 million.
Reliance Steel said that its
results were boosted by strength across a slew of industries
including energy, aerospace, farm and heavy equipment, and
semiconductor. Higher sales volume and pricing also supported
growth.
Moving ahead, the company expects
higher growth across the energy and aerospace industries. However,
it expects the pricing environment to remain uncertain for certain
metals it sells.
Reliance Steel has tremendous
earnings capacity with its broad and diversified product base,
along with a wide geographic footprint that positions it well in
the industry. The company continues to evaluate and execute
additional growth projects and is well placed to leverage the
strong momentum across a number of end markets.
The company’s expansion initiatives
and strategic acquisitions should drive growth in 2012. The
acquisitions of McKey and National Specialty Alloys (“NSA”) have
enabled Reliance Steel to improve its product offerings and expand
into newer markets.
Reliance Steel recently wrapped up
the acquisition of all the assets of the Worthington Steel Vonore
plant from Worthington Industries Inc. (WOR). The
acquisition, which complements the company’s existing portfolio,
will expand its presence in the Southeastern regions of the
U.S.
The company is also focused on
growing its business organically. Integral to this plan, it has
closed down a few small operations, opened new facilities and
expanded the existing ones. The majority of the company’s
stipulated capital expenditure for this year will be focused on
expanding its facilities and improving its geographic footprint.
This is in sync with Reliance Steel’s growth strategy and is
expected to bear fruit in the long run.
That said, we are cautious about
the non-residential construction market, which continues to be the
weakest link. Our recommendation on the stock is backed by a
short-term Zacks #1 Rank (Strong Buy).
RELIANCE STEEL (RS): Free Stock Analysis Report
WORTHINGTON IND (WOR): Free Stock Analysis Report
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