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Reliance Steel (RS) Poised on Acquisitions, Strong Demand
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We issued an updated research report on Reliance Steel & Aluminum Co (RS - Free Report) on Dec 28.
Reliance Steel is gaining from its broad and diversified product base, wide geographic footprint and continued demand strength across aerospace and automotive markets and synergies of acquisitions.
Reliance Steel continues with its aggressive acquisition strategy to tap growth opportunities. The addition of Metals USA to the company’s portfolio has complemented its existing customer base, product mix and geographic footprint.
The buyout of Tubular Steel also boosts the company’s long-term growth strategy and strength by expanding its product portfolio and end-market diversification. Moreover, the acquisition of Best Manufacturing Inc. complements the company's existing service center network with its specialty high margin products, value-added processing capabilities and strong focus on customer service.
Reliance Steel has also acquired all the common stock of Ferguson Perforating Company through its fully-owned subsidiary, Diamond Manufacturing Company. Ferguson’s high value-added processing capabilities align well with the company’s inorganic growth strategy and also extend its product portfolio.
Moreover, Reliance Steel is witnessing strong demand for its products across aerospace and automotive markets. Demand in the aerospace market has been supported by higher commercial aerospace build rates. Strong demand is also witnessed in the automotive market, backed by the company’s toll processing businesses in the United States and Mexico as well as increased use of aluminum in the industry. Reliance Steel expects sustained momentum across these markets.
However, Reliance Steel is exposed to some pricing and volume pressure in the fourth quarter. The company, in its third-quarter call, noted that it expects tons sold will be down 4-6% in the fourth quarter on a sequential comparison basis. Average selling prices are also projected to be flat to down 2% in the fourth quarter compared with the third quarter.
Reliance Steel has underperformed the industry it belongs to over a year. The company’s shares have moved up 9.2% over this period, compared with roughly 17.8% decline recorded by its industry.
Kronos Worldwide has expected long-term earnings growth of 5%. Its shares have skyrocketed 121.1% year to date.
Koppers has expected long-term earnings growth of 18%. Shares of the company have rallied 26.1% year to date.
Westlake Chemical has expected long-term earnings growth of 10.6%. Its shares have soared 30.7% year to date.
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Reliance Steel (RS) Poised on Acquisitions, Strong Demand