Here's What Makes Reliance Steel (RS) a Solid Choice Right Now

Reliance Steel & Aluminum Co. RS is benefiting from strong demand across key end-use markets, a diversified product base and strategic acquisitions. Shares of the company have risen 21% in the past three months.

We are optimistic about its prospects and believe that the time is right to add the stock to the portfolio as it looks poised to carry the momentum ahead.

Let’s delve deeper into the factors that make this Zacks Rank #1 (Strong Buy) stock an attractive choice for investors.

Estimates Northbound

Over the past three months, the Zacks Consensus Estimate for earnings for Reliance Steel for 2022 has increased 11.2%. The consensus estimate for first-quarter 2022 earnings has also been revised 16.5% upward over the same time frame. The favorable estimate revisions instill investor confidence in the stock.

Positive Earnings Surprise History

Reliance Steel’s earnings outpaced the Zacks Consensus Estimate in each of the trailing four quarters, the average being 12.3%.

Superior Return on Equity (ROE)

ROE is a measure of a company’s efficiency in utilizing shareholder’s funds. ROE for the trailing 12-months for Reliance Steel is 24.8%, above the industry’s level of 23.9%.

Upbeat Prospects

Demand in non-residential construction, which is Reliance Steel’s biggest end-market, has gradually expanded and is nearing the pre-pandemic levels. Demand in this market is expected to remain healthy on solid bidding activity. The company expects non-residential construction activities to strengthen through 2022.

Reliance Steel is also witnessing strength in semiconductors and an accelerated recovery in the energy (oil and natural gas) market. Demand in the heavy industry also remains steady. The company is also seeing improved demand in commercial aerospace on a recovery in activities. It remains optimistic about the business environment and sees robust underlying demand in the majority of its end markets in the first quarter of 2022.

The company has also been following an aggressive acquisition strategy for a while as part of its core business policy to drive operating results. Its latest acquisitions of Rotax Metals, Admiral Metals and Nu-Tech Precision Metals are in sync with its strategy of investing in high-quality businesses.

Rotax Metals diversifies the company's products by widening its portfolio of specialty bronze, brass and copper products. Massachusetts-based Admiral Metals’ strong reputation in the metal industry with high levels of customer service and next-day delivery flexibility promises to further solidify Reliance Steel’s position.

Nu-Tech’s reputation in the key markets that it serves through its proprietary processes and quality certifications and its support for Reliance Steel’s customer, product and geographical diversification strategies make it a solid choice. RS anticipates the acquisition to aid its growth in the nuclear, aerospace and other industries.

Reliance Steel also remains focused on offering incremental returns to its shareholders. Last month, its board raised its quarterly dividend by 27.3% to 87.5 cents per share. It repurchased around 2.1 million shares of its common stock for $323.5 million in 2021. The company also returned more than $500 million to its stockholders in 2021 through dividends and share repurchases.

The company also generated cash flow from operations of $799.4 million in 2021 and ended the year with $300.5 million of cash. It has adequate liquidity to meet its short-term debt obligations.

Reliance Steel & Aluminum Co. Price and Consensus

Reliance Steel & Aluminum Co. price-consensus-chart | Reliance Steel & Aluminum Co. Quote

Other Stocks to Consider

Some other top-ranked stocks worth considering in the basic materials space include The Mosaic Company MOS, AdvanSix Inc. ASIX and Commercial Metals Company CMC.

Mosaic, sporting a Zacks Rank #1, has a projected earnings growth rate of 125% for the current year. The Zacks Consensus Estimate for MOS' current-year earnings has been revised 29.2% upward in the past 60 days. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mosaic beat the Zacks Consensus Estimate for earnings in three of the last four quarters, while missed once. It has a trailing four-quarter earnings surprise of roughly 3.7%, on average. MOS has rallied around 120% in a year.

AdvanSix, carrying a Zacks Rank #1, has an expected earnings growth rate of 64.9% for the current year. The consensus estimate for ASIX's current-year earnings has been revised 53% upward in the past 60 days.

AdvanSix beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 46.9%. ASIX has rallied around 97% in a year.

Commercial Metals, carrying a Zacks Rank #1, has a projected earnings growth rate of 80.7% for the current fiscal year. The Zacks Consensus Estimate for CMC's current fiscal year earnings has been revised 13.7% upward over the past 60 days.

Commercial Metals beat the Zacks Consensus Estimate for earnings in three of the last four quarters while missed once. It has a trailing four-quarter earnings surprise of roughly 13.7%, on average. CMC has gained around 37% in a year.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.