RS – Reliance Steel (RS) Up 18% YTD: Will the Momentum Continue?
Reliance Steel & Aluminum Co.’s (RS – Free Report) shares have gained 18.4% year to date. The company has also outperformed its industry’s rise of 5.6% over the same time frame. It has also topped the S&P 500’s roughly 8.1% rise over the same period.
Let’s dive into the factors behind this Zacks Rank #3 (Hold) stock’s price appreciation.
Image Source: Zacks Investment Research
Strong Demand, Acquisitions Drive Reliance Steel
Reliance Steel is gaining from strong underlying demand in its major markets. It envisions healthy demand to continue in the second quarter of 2023.
Demand in non-residential construction, the company’s biggest market, improved in the first quarter. The company is optimistic that demand for non-residential construction activity in the areas in which it operates will remain at healthy levels in the second quarter.
Reliance Steel also witnessed higher year over year demand in the semiconductors market in the first quarter. RS expects the semiconductor market to remain strong and its long-term outlook for semiconductor demand remains favorable.
Demand across the broader manufacturing sectors that it serves improved modestly and the company sees stable demand in the second quarter. Demand in energy (oil and natural gas) improved year over year in the first quarter and the company is cautiously optimistic that demand will remain steady in the second quarter.
The company also witnessed higher demand for the toll processing services that it provides to the automotive market and expects demand to increase in the second quarter. Additionally, demand in commercial aerospace improved during the first quarter and the company is cautiously optimistic that demand will continue to improve in the second quarter.
Reliance Steel has also been following an aggressive acquisition strategy for a while as part of its core business policy to drive operating results. The acquisitions of Rotax Metals, Admiral Metals and Nu-Tech Precision Metals are in sync with its strategy of investing in high-quality businesses.
The company also remains committed to boost returns to shareholders. It repurchased shares worth $38.9 million in the first quarter. The company returned $100.9 million to its stockholders during through dividends and the repurchases in the quarter. Reliance Steel, in Feb 2023, also increased its quarterly dividend by 14.3% to $1.00 per share.
What’s Ahead for the Stock?
Reliance Steel is expected to continue to gain from strong demand in key markets in the near term. The healthy demand in non-residential construction, strength in the semiconductors market and increased production rates by automotive manufacturers are expected to aid company’s performance in the second quarter. Organic and inorganic growth strategies adopted by the company are also expected to aid its performance. The company is also expected to benefit from improved prices in the second quarter. The impacts of actions to raise carbon steel prices are likely to reflect on its performance.
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