Reliance Steel Raised to Outperform - Analyst Blog

Date : 05/21/2012 @ 10:30AM
Source : Zacks
Stock : Worthington Industries, Inc. (WOR)
Quote : 46.7  0.57 (1.24%) @ 4:02PM
Worthington share price Chart

Reliance Steel Raised to Outperform - Analyst Blog

We are upgrading our recommendation on Reliance Steel & Aluminum Co. (RS) to Outperform following its solid first-quarter 2012 results. Earnings of $1.54 per share topped the Zacks Consensus Estimate of $1.50. The company saw healthy double-digit growth in sales (up 20% year over year to $2,288.3 million), which beat the Zacks Consensus Estimate of $2,139 million.

Reliance Steel said that its results were boosted by strength across a slew of industries including energy, aerospace, farm and heavy equipment, and semiconductor. Higher sales volume and pricing also supported growth.

Moving ahead, the company expects higher growth across the energy and aerospace industries. However, it expects the pricing environment to remain uncertain for certain metals it sells.

Reliance Steel 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.

The company’s expansion initiatives and strategic acquisitions should drive growth in 2012. The acquisitions of McKey and National Specialty Alloys (“NSA”) have enabled Reliance Steel to improve its product offerings and expand into newer markets.

Reliance Steel recently wrapped up the acquisition of all the assets of the Worthington Steel Vonore plant from Worthington Industries Inc. (WOR). The acquisition, which complements the company’s existing portfolio, will expand its presence in the Southeastern regions of the U.S.

The company is also focused on growing its business organically. Integral to this plan, it has closed down a few small operations, opened new facilities and expanded the existing ones. The majority of the company’s stipulated capital expenditure for this year will be focused on expanding its facilities and improving its geographic footprint. This is in sync with Reliance Steel’s growth strategy and is expected to bear fruit in the long run.

That said, we are cautious about the non-residential construction market, which continues to be the weakest link. Our recommendation on the stock is backed by a short-term Zacks #1 Rank (Strong Buy).

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