Reliance Steel (RS) Up 26% In 6 Months: What's Driving It?
Zacks Investment Research | May 21, 2018 08:38AM ET
Shares of Reliance Steel & Aluminum Co. (NYSE:RS) have spiked around 26% over the last six months. The company has also outperformed its industry ’s gain of roughly 21% to over the same time frame.
Reliance Steel has a market cap of roughly $6.9 billion. Average volume of shares traded in the last three months is around 542.2K. The company has an expected long-term earnings per share growth of 9%.
Let’s take a look into the factors that are driving this Zacks Rank #1 (Strong Buy) stock.
Driving Factors
Forecast-topping earnings performance in the last reported quarter has contributed to a rally in Reliance Steel’s shares. Reliance Steel saw its profits surge around 51% year over year in the first quarter on the back of a positive demand environment and higher year over year pricing levels.
Earnings of $2.30 per share for the quarter exceeded the Zacks Consensus Estimate of $2.01. Net sales went up 14% year over year to $2,757.1 million, also topping the Zacks Consensus Estimate of $2,704 million.
Notably, Reliance Steel beat earnings estimates in each of the trailing four quarters, delivering an average beat of 11.6%.
Reliance Steel, during its first-quarter call, said that it is optimistic about business activity levels in the second quarter and sees continued improvement in the end markets in which it operates. However, it expects shipment levels to be affected by the pre-buying activity that took place in the first quarter.
Annual estimates for Reliance Steel have also moved north over the past two months, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for 2018 has increased by around 20.4% to $8.45 per share. The Zacks Consensus Estimate for 2019 has also moved up roughly 6.8% over the same timeframe to $8.05.
The Zacks Consensus Estimate for earnings for 2018 reflects an expected year-over-year growth of around 55.3%.
Reliance Steel is gaining from its broad and diversified product base, synergies of acquisitions and continued strong momentum across automotive and aerospace markets. Demand in the aerospace market has been supported by higher commercial aerospace build rates. Strong demand is also witnessed in the automotive market, backed by the company’s toll processing businesses in the United States and Mexico as well as increased use of aluminum in the industry.
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Reliance Steel is also benefiting from an improving metal pricing environment. Its average prices per ton sold went up around 10% year over year to $1,724 in the first quarter, contributing to its earnings. The company sees its average selling prices to be up 5% to 8% in the second quarter compared with the first. This should support its margins in the second quarter.
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