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Reliance Steel Well Placed on Acquisitions, Healthy Demand

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On Jun 22, we issued an updated research report on metal processor Reliance Steel & Aluminum Co.RS .

Reliance Steel's adjusted earnings for first-quarter 2016 outperformed the Zacks Consensus Estimate. The company benefited from improved operational performance and strong customer demand across most of its end markets.

Reliance Steel, in its first-quarter call, said that it expects overall sales volumes to remain flat or increase up to 2% sequentially in the second quarter due to the slow growth of the U.S. economy. The company is optimistic about metal pricing in the second quarter due to recent mill price rises.

Earnings estimates for Reliance Steel have been going up ahead of the company's second-quarter earnings release. The Zacks Consensus Estimate for the second quarter has gone up 1.6% in the past 30 days, thanks to 3 upward revisions during the period with no downward revisions.

While Reliance Steel remains challenged by still weak steel industry fundamentals, it is well placed to leverage the strong momentum across a number of end markets. The company's broad and diversified product base, along with a wide geographic footprint positions it well in the industry.

Reliance Steel is seeing strong demand for its products across the aerospace and automotive markets. Demand in the aerospace market is being supported by higher commercial aerospace build rates. The automotive market is witnessing strong demand, backed by the company's toll processing businesses in the U.S. and Mexico as well as increased use of aluminum in the industry. Reliance Steel expects sustained momentum across these markets in 2016.

Reliance Steel also continues with its aggressive acquisition strategy to fuel growth. The company, in Apr 2016, closed the acquisition of Best Manufacturing, a custom sheet metal fabricator of steel and aluminum products. The acquisition is a strategic fit for Reliance Steel and highly complements its existing service center network given Best Manufacturing's specialty high margin products, value-added processing capabilities and strong focus on customer service.

Moreover, the acquisition of Aluminium Services UK Limited has allowed Reliance Steel to expand its presence in the aerospace market. The purchase of Fox Metals and Alloys has also strengthened the company's foothold in the oil and gas space. Further, the buyout of Tubular Steel has enhanced the company's long-term growth strategy and strength by expanding its product portfolio and end market diversification. Also, the acquisition of steel and aluminum components maker, Metals USA, complements Reliance Steel's existing customer base, product mix and geographic footprint.

Reliance Steel also remains committed to offer incremental returns to its shareholders. The company has sufficient liquidity and cash flows to support dividend payouts and share buybacks moving ahead.

Reliance Steel is a Zacks Rank #2 (Buy) stock.

Stocks to Consider

Other well-placed companies in the basic materials space include AK Kaiser Aluminum Corporation KALU , SKF AB SKFRY and Worthington Industries, Inc. WOR , all holding a Zacks Rank #2.

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

WORTHINGTON IND (WOR): Free Stock Analysis Report

SKF AB (SKFRY): Free Stock Analysis Report

KAISER ALUMINUM (KALU): Free Stock Analysis Report

RELIANCE STEEL (RS): Free Stock Analysis Report

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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.


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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