Commercial Metals Company
(CMC - Free Report
) is performing well driven by improving key end markets, rising scrap prices and favorable macroeconomic and market conditions in both the United States and Poland. A positive trend in estimate revisions reflects optimism over the company’s prospects. Further, price performance ahead of the industry and strong fundamentals instil investors’ confidence in the stock.
In the past three months, Commercial Metals’ shares have gained 7.6%, against the industry
’s drop of 3.7%.
Favorable Zacks Rank, Score
Commercial Metals carries a Zacks Rank #3 (Hold). It has a VGM score
of A. Here V stands for Value, G for Growth and M for Momentum. The company’s score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. In fact, our research shows that stocks with a VGM Score of A or B when combined with a Zacks Rank #1, 2 or 3 make solid investment choices.
Estimate Revisions, Impressive Growth Projections
Estimates for Commercial Metals for both second-quarter fiscal 2018 and fiscal 2018 have moved up 2% and 4%, respectively, over the past 90 days, reflecting the optimistic outlook of analysts. The consensus mark of 52 cents for the quarter reflects year-over-year growth 629%, while the same for fiscal 2018 is pegged at $1.52 projecting year-over-year increase of 145%.
Upbeat Q3, Guidance
Commercial Metal’s top and bottom-line both improved on a year-over-year basis in the third quarter of fiscal 2018 aided by strong demand across all of its segments. There has been improvement in farm equipment manufacturing activity, construction machinery and energy related spending. Additionally, non-residential construction activity in the United States is growing at approximately 3% per year and now approaching spending levels that occurred prior to the financial crisis.
Strong bidding activity has led to significant growth in the company’s backlog. Leading indicators of macroeconomic and market conditions in both the United States and Poland suggest continued economic growth and should translate into improved long product steel demand. The imposition of tariff under Section 232 for additional import duties for steel mill and aluminum products is likely to level the playing field for Commercial Metals against imported rebar and merchant bar products. The company can now effectively compete on a global basis.
The company’s top-line is benefiting from the increase in global investment in infrastructure, spurred by improvement in the construction and energy sectors, which has led to an environment of increased pricing of raw materials, including scrap prices. This increase in scrap prices has favorably impacted quarter-over-quarter and year-over-year average selling prices in the company’s Americas Recycling, Americas Mills, and International Mill segments.
The Americas Mill segment will continue to gain from improving construction activity as well as lower imports. Notably, in the third quarter, the Americas Recycling segment reported its highest quarterly profit in seven years on the back of strong demand for ferrous scrap and an increasing price environment for both ferrous and non-ferrous material. Year to date, ferrous prices have increased approximately 21% while non-ferrous prices have rose 15%. The segment is poised well on the back of rising scrap prices.
At the International Mill segment, robust market conditions will persist in Poland which will aid results. In Poland, steel consumption was a record 13.5 million metric tons in 2017, increasing for the fourth year in a row. The construction sector, which accounts for 43% of national steel consumption, exhibited an increase of 12% in production supported by infrastructure projects co-financed by EU funds. This rising inflow of EU investment and upbeat business confidence has led an expected GDP growth rate of 3.7% for 2018. Conducive markets in Poland and the company’s recent investment in the country positions it well for improved results in the future.
Stocks to Consider
KMG Chemicals has expected long-term growth rate of 28.5%. Its shares have appreciated 18% over the past three months.
Domtar has an expected long-term growth rate of 5%. Its shares have gained 7% over the past three months.
Ingevity has expected long-term growth rate of 12%. Its shares have appreciated 9% in the past three months.
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