What Makes Reliance Steel (RS) Stock A Solid Choice Right Now
Zacks Investment Research | Dec 19, 2019 07:42AM ET
Reliance Steel & Aluminum Co.'s (NYSE:RS) stock looks promising at the moment. Its shares have shot up around 34% over the past six months. The company is gaining from strong demand in aerospace and automotive end-markets, focus on high-margin products and acquisitions.
Reliance Steel currently has a Zacks Rank #1 (Strong Buy) and a industry it belongs to over a year. The company’s shares have surged 69.3% compared with 58% rise recorded by the industry.
Estimates Northbound
Earnings estimate revisions have the greatest impact on stock prices. Estimates for 2019 for Reliance Steel have moved up over the past two months. Over this period, the Zacks Consensus Estimate for the year has moved up 5.8%. The Zacks Consensus Estimate for 2020 has also increased 5% over the same timeframe.
Positive Earnings Surprise History
Reliance Steel has outpaced the Zacks Consensus Estimate in three of the trailing four quarters. In this timeframe, the company has delivered a positive average earnings surprise of 1.6%.
Superior Return on Equity (ROE)
ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12-months for Reliance Steel is 12.5%, above the industry’s level of 2.7%.
Growth Drivers in Place
Reliance Steel is seeing strength in the aerospace and automotive markets. The company is witnessing healthy demand for heat-treated aluminum products in the aerospace markets. Demand in aerospace was healthy in the third quarter, with strong order backlog. Reliance Steel remains committed to boosting its market share in aerospace.
Further, the company is witnessing strong demand for processing services in the automotive market. It remains committed to investing in facilities and value-added processing equipment to address the rising demand for the services it offers.
Moreover, demand in the non-residential construction end-market was also stronger than what the company had anticipated in the third quarter. Strong demand in this market led to higher-than-expected shipments in the quarter.
The company, in its third-quarter call, noted that it is optimistic about business conditions in the fourth quarter. Excluding the impact of normal seasonal patterns, it expects end demand to stay relatively steady in the fourth quarter compared with the third quarter.
Get The News You Want
Reliance Steel also continues with its aggressive acquisition strategy to tap growth opportunities. In particular, the buyout of All Metals Holding complements Reliance Steel’s growth strategy and meets its criteria of buying high quality businesses that are immediately accretive to its earnings. All Metals’ focus on high return, toll processing and logistics services further bolsters Reliance Steel’s solid position in these areas.
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