On May 19, we issued an updated research report on
Reliance Steel & Aluminum Co.
). While the metal processor is poised to gain from strong momentum
across a number of end-use markets, it remains exposed to a weak
pricing environment and a still soft non-residential construction
Reliance Steel's adjusted earnings for the first quarter of 2014,
reported on Apr 24, missed the Zacks Consensus Estimate. However,
revenues jumped on higher demand and contributions from
acquisitions, and beat expectations. The company expects the
pricing and demand environment to improve in 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. It continues to evaluate and execute additional
growth projects and is well placed to leverage strength across a
number of markets, including automotive and aerospace.
Reliance Steel continues its aggressive acquisition strategy to
boost growth. The acquisition of steel and aluminum components
maker Metals USA is a strategic fit with the company's portfolio
and complements its existing customer base, product mix and
geographic footprint. The company is also focused on growing its
Reliance Steel also remains committed to offer incremental returns
to its shareholders. The company, in Feb 2014, raised its quarterly
dividend by 6% to 35 cents per share.
However, Reliance Steel still contends with a soft steel and metals
pricing environment. Average selling prices fell roughly 9% year
over year in the first quarter. The overall pricing environment is
expected remain volatile.
In addition, the non-residential construction market - Reliance
Steel's largest end-market - continues to be a weak link. While
there has been some recovery of late, demand remains significantly
below the peak levels achieved in 2006.
Reliance Steel also remains challenged by weak steel industry
fundamentals. The U.S. steel industry has been hobbled by increased
imports of cheaper steel products. The industry remains affected by
overcapacity that continues to outpace demand.
Other Stocks to Consider
Other metals companies having favorable Zacks Rank are
Mitsui & Co. Ltd.
Norsk Hydro ASA
). While NN carries a Zacks Rank #1 (Strong Buy), both Mitsui and
Norsk Hydro hold a Zacks Rank #2 (Buy).
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