We are retaining our Neutral recommendation on
Reliance Steel & Aluminum Co.
). While the company is seeing strength across automotive and
energy markets, a still soft non-residential construction market
and the weak pricing environment lead us to take a cautious
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Both revenues and earnings for first-quarter 2013, reported on
Apr 25, missed the Zacks Consensus Estimates. Weak demand and
lower pricing led to a double-digit decline in revenues. Healthy
momentum across automotive, energy and heavy equipment was
somewhat masked by lingering weakness in the non-residential
construction market. The company expects economic challenges to
continue into the second quarter.
Reliance Steel, a Zacks Rank #3 (Hold) stock, 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.
In addition, Reliance Steel remains committed to offer
incremental returns to its shareholders. The company, in Feb
2013, boosted its quarterly dividend by 20% to 30 cents a share.
Reliance Steel continues its aggressive acquisition strategy to
incite growth. It recently closed the acquisition of steel and
aluminum components maker Metals USA Holdings Corp. Metals USA is
a strategic fit with Reliance Steel's portfolio and complements
its existing customer base, product mix and geographic footprint.
However, Reliance Steel remains challenged by weak steel industry
fundamentals and contends with soft steel and metals pricing
environment. In addition, raw material prices are expected to
We also remain concerned about the non-residential construction
market (the company's largest end market), which continues to be
the weakest link. While there has been a modest recovery of late,
demand remains significantly below the peak levels achieved in
Other Stocks to Consider
Other companies in the metals industry having a favorable Zacks
Worthington Industries Inc.
Northwest Pipe Co.
). While NSK holds a Zacks Rank #1 (Strong Buy), both Worthington
and Northwest Pipe retain a Zacks Rank #2 (Buy).