Reliance Steel (RS) Rallies 33% YTD: What's Driving the Stock?

Reliance Steel & Aluminum Co.’s RS shares have shot up 33% year to date. The company has also outperformed its industry’s rise of 3.7% over the same time frame. Moreover, it has topped the S&P 500’s roughly 18.5% rise over the same period.

Let’s dive into the factors behind this Zacks Rank #3 (Hold) stock’s price appreciation.

 

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Image Source: Zacks Investment Research

 

What’s Aiding RS?

Reliance Steel is gaining from strong underlying demand in its major markets. It expects demand to remain healthy in its end markets in the fourth quarter of 2023.

Demand in non-residential construction, the company’s biggest market, increased in the third quarter. Based on the current sentiment of customers and existing backlogs, the company maintains an optimistic outlook for the fourth quarter, anticipating that non-residential construction activities in the sectors it operates in will remain healthy, with consideration for the usual seasonal variations.

Reliance Steel is also witnessing higher year-over-year demand for toll processing services for the automobile market. The company’s niche position in providing toll processing services to the automotive market, particularly with the ongoing rise in aluminum usage, instills optimism for long-term demand in this sector.

Commercial aerospace demand also remained strong in the third quarter. RS expects commercial aerospace demand to stay healthy in the fourth quarter as build rates grow from current levels. Moreover, demand in the company’s aerospace business's military, defense and space segments remains robust, with substantial backlogs.

Moreover, RS has been following an aggressive acquisition strategy for a while as part of its core business policy to drive operating results. The acquisitions of Rotax Metals, Admiral Metals and Nu-Tech Precision Metals are in sync with its strategy of investing in high-quality businesses. The acquisition of Southern Steel Supply also expands the company’s reach in the Southern United States and boosts its value-added processing services.

Reliance Steel also remains committed to boost returns to shareholders. RS returned $185.1 million to its stockholders during the third quarter of 2023 through dividends and the repurchases. The company generated $466 million in cash flow from operations in the quarter, owing to its strong profitability and good working capital management. Reliance Steel, in Feb 2023, also increased its quarterly dividend by 14.3% to $1.00 per share.

 

Reliance Steel & Aluminum Co. Price and Consensus

 

Reliance Steel & Aluminum Co. Price and Consensus

Reliance Steel & Aluminum Co. price-consensus-chart | Reliance Steel & Aluminum Co. Quote

 

Stocks to Consider

Better-ranked stocks worth a look in the basic materials space include Denison Mines Corp. DNN, Axalta Coating Systems Ltd. AXTA and The Andersons Inc. ANDE.

Denison Mines has a projected earnings growth rate of 100% for the current year. DNN has a trailing four-quarter earnings surprise of roughly 225%, on average. The stock is up around 55% in a year. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, the Zacks Consensus Estimate for Axalta Coating Systems’ current year has been revised upward by 8.2%. AXTA, carrying a Zacks Rank #1, beat the Zacks Consensus Estimate in three of the last four quarters while missing in one quarter, with the average earnings surprise being 6.7%. The company’s shares have gained 19% in the past year.

Andersons currently carries a Zacks Rank #2 (Buy). The Zacks Consensus Estimate for ANDE's current-year earnings has been revised 5.1% upward over the past 60 days. Andersons beat the Zacks Consensus Estimate in three of the last four quarters. It delivered a trailing four-quarter earnings surprise of 32.8%, on average. ANDE shares have rallied around 32% in a year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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