Shares of Commercial Metals Company (CMC - Free Report) are well poised to grow on its impressive earnings performance in fiscal 2019 and robust key end markets.
In the past three months, the stock has gained 11.9% against 8.0% decline witnessed by the industry it belongs to.
The company currently has a Zacks Rank #2 (Buy) and a VGM Score of A. Our research shows that stocks with a VGM Score of A or B, combined with a Zacks Rank #1 (Strong Buy) or 2, offer the best investment opportunities.
Why the Stock is an Attractive Investment Option
Analysts are bullish on the stock as it has been witnessing solid upward estimate revisions. Over the past 60 days, the Zacks Consensus Estimate for the company’s earnings has been raised 2% and 4% for fiscal 2019 and fiscal 2020, respectively.
Upbeat Q3 Performance
Commercial Metals delivered adjusted earnings per share of 67 cents in third-quarter fiscal 2019, marking a 64% year-over-year improvement. Net sales for the reported quarter rose 33% year over year to $1,606 million, backed by the execution of various growth strategies and solid fundamentals in core markets.
Healthy Growth Projections
The Zacks Consensus Estimate for Commercial Metals’ fiscal 2019 earnings is currently pegged at $2.05, suggesting growth of 37.58% from the year-ago reported figure. The same for fiscal 2020 is pegged at $2.05, indicating a year-over-year improvement of 0.16%.
Positive Earnings Surprise History
Commercial Metals outpaced the Zacks Consensus Estimate in three of the trailing four quarters, the average beat being 8.27%.
The forward 12-month P/E ratio is 8.0 for the company while the same for the industry is pegged higher at 10.36. This implies that the stock is cheaper in valuation.
Return on Assets
Commercial Metals currently has a return on assets (ROA) of 6.0% while the industry recorded 4.5%. An above-average ROA denotes that the company is generating earnings by effectively managing assets.
Spending on construction activity in the United States continues to grow. Leading indicators of macroeconomic and market conditions in the United States and Poland suggest continued economic growth and should translate into improved demand for steel, which bodes well for the company. Conducive markets in Poland and Commercial Metals’ recent investment in the country pose it well for improved results.
The company completed the ramp-up of production volume at the micro mill in Durant, OK, with better-than-expected returns, supported by strong rebar demand and elevated metal margins. Construction is progressing well at the Arizona micro mill, where Commercial Metals invested in a second spooler to produce hot spooled rebar. The facility is expected to start producing spooled material in the fourth quarter of fiscal 2019. Commercial Metals also started construction on expanding the finished goods’ production capacity by approximately 400,000 metric tons at its Poland facility. The investment will allow the facility to fully utilize its existing melt capacity and continue its expansion into higher-margin wire rod and merchant product. The project is likely to be completed by the end of fiscal 2020.
On Nov 5, 2018, the company completed the acquisition of certain U.S. rebar steel mill and fabrication assets from Gerdau S.A.. The buyout will add more than 2 million tons of rebar capacity as well as approximately 800,000 tons of fabricated steel capacity. This gives Commercial Metals dominant share in the U.S. rebar market. The company will have an expanded geographic presence in the largest construction region in the United States.
Stocks to Consider
Some other top-ranked stocks in the Basic Materials space are Kinross Gold Corporation (KGC - Free Report) , Alamos Gold Inc. (AGI - Free Report) and Arconic Inc. (ARNC - Free Report) , each flaunting a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Kinross has an expected earnings growth rate of 151% for 2019. The company’s shares have gained 51.6% over the past three months.
Alamos Gold has an outstanding projected earnings growth rate of 324% for the current year. The company’s shares have appreciated 57.2% in a year.
Arconic has an estimated earnings growth rate of 50% for the ongoing year. The stock has rallied 12.6% in the past year.
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