As reported by Reuters, ratings agency Standard & Poor's
recently raised the ratings of
Reliance Steel & Aluminum Co.
), including its senior unsecured debt and corporate credit
ratings, to 'BBB' from 'BBB-.' S&P also maintained a 'Stable'
outlook for the company's ratings.
The positive ratings action was based on the size and
diversification of the company's distribution business, which has
consistently maintained its margins and improved credit metrics
over time. S&P expects this performance to continue in the long
term and hence raised the ratings.
The rating upgrade also reflects the demand for Reliance Steel's
products in its important end markets and its ability to maintain
steady revenue and EBITDA growth over the past few years even amid
a sluggish economic recovery.
Moreover, S&P cited that inorganic growth strategy and
improvement in energy and aerospace end markets could help the
company mitigate soft demand from non-residential construction
The ratings agency also believes that Reliance's revenues will
grow in the high single-digits this year. Moreover, increased
demand is expected to result in a 10% rise in sales volume this
year and help offset the negative impact of declining steel
S&P rated the company's liquidity position as "strong."
Reliance had total liquidity of $705 million, as of June 30, 2012.
Moreover, the ratings agency believes that Reliance's internally
generated cash flow of $450-$500 million would suffice its working
In addition, Reliance is well placed to manage its overall debt
maturities. The company will likely repay the forthcoming maturity
of $75 million of unsecured private placement notes with cash next
year. Also, Reliance has complied with the covenants attached to
its revolving credit facility quite successfully and would probably
sustain the trend over the next two years.
However, S&P said that any near-term ratings upgrade is
unlikely owing to Reliance's inorganic growth strategy and a
sluggish nonresidential construction market. Moreover, the ratings
might be downgraded in case Reliance takes on excessive debt for
financing its acquisitions or returning cash to shareholders. Also,
a further decline in steel prices, which would hurt margins, or a
deceleration in demand from Reliance's end markets might result in
We currently have a long-term Outperform recommendation on
Reliance Steel. The company, which competes with
Metals USA Holdings Corp.
Worthington Industries Inc.
), maintains a Zacks #3 Rank, which translates into a short-term (1
to 3 months) Hold rating.
METALS USA HLDG (MUSA): Free Stock Analysis
RELIANCE STEEL (RS): Free Stock Analysis Report
WORTHINGTON IND (WOR): Free Stock Analysis
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