Commercial Metals Steel Business Strong, But Other Divisions Holding Growth Back Says Citi

Citi has started coverage of mini mill long products steel producer Commercial Metals Company CMC with a Neutral rating and a target price of $16.

Commercial Metals Company runs a number of low cost, highly profitable long product mini-mills across the relatively more rapidly growing "Sunbelt" region of the United States and in Poland. Citi said the company has a strong liquidity position and has been the only steel producer actively repurchasing shares in recent years.

"Despite US non-residential construction spending returning to peak historical levels, CMC's mill shipments remained flat since FY2012 due largely to competitively prices imports," analyst Alexander Hacking wrote in a note.

In addition, a failed trade case related to 80 percent of rebar imports leaves the market wide open and high current U.S. price premium should continue to attract imports and pressure domestic prices and volumes.

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"Outside of the steel mills, performance in other business segments including recycling and marketing and distribution has been disappointing in recent years. We expect this will continue to weigh on overall result," Hacking noted.

Hacking expects Commercial Metals Company to earn $0.96/$1.08/$1.13 for 2016/17/18, respectively. The Street consensus stands at $0.98/$1.28/$1.65.

Shares of Commercial Metals Company closed Friday's regular trading at $15.91 and were slightly up at time of writing Monday (up 0.38 percent at $15.97).

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