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Reasons to Hold Commercial Metals (CMC) in Your Portfolio
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Commercial Metals Company (CMC - Free Report) is gaining from stellar fourth-quarter fiscal 2020 results, solid construction and infrastructure activities in the United States and Poland. Moreover, strong fabrication backlogs and the company’s investments in the expanding domestic mill network will aid growth. However, concerns over the coronavirus pandemic are likely to weigh on steel prices, in turn denting the company’s margins.
Commercial Metals currently carries a Zacks Rank #3 (Hold). It has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, offer the best investment opportunities for investors.
The company has an estimated long-term earnings growth rate of 3.4%.
Earnings & Sales Beat Estimates in Q4
Commercial Metals reported adjusted earnings per share of 79 cents in the fiscal fourth quarter, beating the Zacks Consensus Estimate of 60 cents and increased 4% year over year as well. Net sales of $1,409 million also surpassed the Zacks Consensus Estimate $1,384 million.
Positive Earnings Surprise History
Commercial Metals has a trailing four-quarter average earnings surprise of 44.7%.
Valuation is Inexpensive
The trailing 12-month EV/EBITDA ratio is 5.1 for the company, while the industry's average trailing 12-month EV/EBITDA ratio is 10.5.
Underpriced
Looking at Commercial Metal’s price-to-earnings ratio, its shares are underpriced at the current level, which seems attractive for investors. The company has a trailing P/E ratio of 8.2, which is lower than the industry average of 63.1.
Growth Drivers in Place
Commercial Metals expects improved steel demand in fiscal 2021, prompted by recovery in the construction sector and rebound in Central European industrial production. Spending in construction activity in the United States is encouraging, which will translate into rebar demand and improved long product steel demand in the near term. In Europe, construction demand has been resilient in private and public sectors. Further, the Polish government’s investments in infrastructure will boost construction activity in Poland in fiscal 2021. Apart from this, manufacturing activities in Poland and Germany have been expanding for the past few months. These factors position the company well for near-term growth.
Furthermore, the company is poised to gain from robust fabrication backlogs which will support domestic demand for rebar in the days to come. Fabrication margins are anticipated to be impressive on solid backlog pricing and easing of input costs. Apart from these, Commercial Metals’ ongoing network-optimization efforts in North America and expanded domestic mill network will yield additional margin and working capital benefits in the upcoming period. Its capacity-curtailment initiative at the West Coast fabrication facility in order to support the company’s network optimization efforts will also provide cost benefits.
However, there are a few factors that are likely to hinder growth.
Commercial Metals believes finished steel volumes for North America and Europe operations will follow seasonal trends in first-quarter fiscal 2021 as the summer constructions season gets over for the company. Meanwhile, the North America operations will be adversely impacted by storms in the Texas and Gulf Coast markets. Moreover, the company believes the recent rise in scrap costs is likely to depress margins in the North America business during the fiscal first quarter.
The pandemic has dampened recovery in the U.S. steel industry, which bore the brunt of a sharp decline in domestic steel prices and damaging impacts of the trade war last year. U.S steel prices have come under pressure this year amid the pandemic-induced demand disruption. This has affected Commercial Metals’ ability to boost sales, margins, and profitability. A significant rebound in U.S. steel prices is not expected any time soon given the current subdued demand environment.
Share Price Performance
Commercial Metals’ shares have gained 7.6% over the past year compared with the industry’s growth of 4.1%.
Agnico Eagle Mines Limited has an expected earnings growth rate of a whopping 103% for the current year. The company’s shares have rallied 38% over the past year.
Barrick Gold has an estimated earnings growth rate of 99% for the ongoing year. Its shares have appreciated 67% in the past year.
Newmont has a projected earnings growth rate of 98% for 2020. The stock has appreciated 72% in a year’s time.
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Reasons to Hold Commercial Metals (CMC) in Your Portfolio
Commercial Metals Company (CMC - Free Report) is gaining from stellar fourth-quarter fiscal 2020 results, solid construction and infrastructure activities in the United States and Poland. Moreover, strong fabrication backlogs and the company’s investments in the expanding domestic mill network will aid growth. However, concerns over the coronavirus pandemic are likely to weigh on steel prices, in turn denting the company’s margins.
Commercial Metals currently carries a Zacks Rank #3 (Hold). It has a VGM Score of B. Our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, offer the best investment opportunities for investors.
The company has an estimated long-term earnings growth rate of 3.4%.
Earnings & Sales Beat Estimates in Q4
Commercial Metals reported adjusted earnings per share of 79 cents in the fiscal fourth quarter, beating the Zacks Consensus Estimate of 60 cents and increased 4% year over year as well. Net sales of $1,409 million also surpassed the Zacks Consensus Estimate $1,384 million.
Positive Earnings Surprise History
Commercial Metals has a trailing four-quarter average earnings surprise of 44.7%.
Valuation is Inexpensive
The trailing 12-month EV/EBITDA ratio is 5.1 for the company, while the industry's average trailing 12-month EV/EBITDA ratio is 10.5.
Underpriced
Looking at Commercial Metal’s price-to-earnings ratio, its shares are underpriced at the current level, which seems attractive for investors. The company has a trailing P/E ratio of 8.2, which is lower than the industry average of 63.1.
Growth Drivers in Place
Commercial Metals expects improved steel demand in fiscal 2021, prompted by recovery in the construction sector and rebound in Central European industrial production. Spending in construction activity in the United States is encouraging, which will translate into rebar demand and improved long product steel demand in the near term. In Europe, construction demand has been resilient in private and public sectors. Further, the Polish government’s investments in infrastructure will boost construction activity in Poland in fiscal 2021. Apart from this, manufacturing activities in Poland and Germany have been expanding for the past few months. These factors position the company well for near-term growth.
Furthermore, the company is poised to gain from robust fabrication backlogs which will support domestic demand for rebar in the days to come. Fabrication margins are anticipated to be impressive on solid backlog pricing and easing of input costs. Apart from these, Commercial Metals’ ongoing network-optimization efforts in North America and expanded domestic mill network will yield additional margin and working capital benefits in the upcoming period. Its capacity-curtailment initiative at the West Coast fabrication facility in order to support the company’s network optimization efforts will also provide cost benefits.
However, there are a few factors that are likely to hinder growth.
Commercial Metals believes finished steel volumes for North America and Europe operations will follow seasonal trends in first-quarter fiscal 2021 as the summer constructions season gets over for the company. Meanwhile, the North America operations will be adversely impacted by storms in the Texas and Gulf Coast markets. Moreover, the company believes the recent rise in scrap costs is likely to depress margins in the North America business during the fiscal first quarter.
The pandemic has dampened recovery in the U.S. steel industry, which bore the brunt of a sharp decline in domestic steel prices and damaging impacts of the trade war last year. U.S steel prices have come under pressure this year amid the pandemic-induced demand disruption. This has affected Commercial Metals’ ability to boost sales, margins, and profitability. A significant rebound in U.S. steel prices is not expected any time soon given the current subdued demand environment.
Share Price Performance
Commercial Metals’ shares have gained 7.6% over the past year compared with the industry’s growth of 4.1%.
Stocks to Consider
Some better-ranked stocks in the basic materials space are Agnico Eagle Mines Limited (AEM - Free Report) , Barrick Gold Corporation (GOLD - Free Report) and Newmont Corporation (NEM - Free Report) . While Agnico Eagle Mines and Barrick Gold flaunt a Zacks Rank #1, Newmont carries a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Agnico Eagle Mines Limited has an expected earnings growth rate of a whopping 103% for the current year. The company’s shares have rallied 38% over the past year.
Barrick Gold has an estimated earnings growth rate of 99% for the ongoing year. Its shares have appreciated 67% in the past year.
Newmont has a projected earnings growth rate of 98% for 2020. The stock has appreciated 72% in a year’s time.
Legal Marijuana: An Investor’s Dream
Imagine getting in early on a young industry primed to skyrocket from $17.7 billion in 2019 to an expected $73.6 billion by 2027.
Although marijuana stocks did better as the pandemic took hold than the market as a whole, they’ve been pushed down. This is exactly the right time to get in on selected strong companies at a fraction of their value before COVID struck. Zacks’ Special Report, Marijuana Moneymakers, reveals 10 exciting tickers for urgent consideration.
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