Reliance Steel (RS) Faces Near-term Pricing Headwinds - Analyst Blog

On Nov 12, we issued an updated research report on metal processor Reliance Steel & Aluminum Co. (RS). While the company should gain from its strategic acquisitions and strength across automotive and aerospace markets, it remains exposed to a volatile pricing environment and a still weak commercial construction market.
 
Reliance Steel's adjusted earnings for the third quarter of 2014, reported on Oct 23, missed the Zacks Consensus Estimate while sales beat the same. Revenues rose on improved demand across aerospace and energy markets and contributions from acquisitions.

Reliance Steel, a Zacks Rank #4 (Sell) stock, sees a slow but steady recovery in the U.S. economy and expects sales volumes to decline sequentially in the fourth quarter resulting from lesser shipping days due to the holiday season and closures at many of its customers' facilities. The company expects pricing to fall in the quarter due to softness in many carbon steel products and lower nickel prices.

Reliance Steel still contends with a soft steel and metals pricing environment. Prices for carbon steel products and nickel are expected remain soft in the near term. For carbon steel products, excessive imports are keeping prices for flat-roll and plate under pressure. The overall pricing environment is expected remain volatile.

Reliance Steel also remains challenged by weak steel industry fundamentals. The U.S. steel industry has been plagued by increased imports of cheaper steel products. The industry remains affected by overcapacity that continues to outpace demand.

Moreover, the non-residential construction market – Reliance Steel's biggest end-market – continues to be a weak link. While there has been some recovery of late, demand remains significantly below the peak levels achieved in 2006.

Other Stocks to Consider

Other steel and metals companies having favorable Zacks Rank are United States Steel Corp. (X), Noranda Aluminum Holding Corp. (NOR) and Nucor Corporation (NUE). While United States Steel carries a Zacks Rank #1 (Strong Buy), both Noranda and Nucor hold a Zacks Rank #2 (Buy).

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RELIANCE STEEL (RS): Free Stock Analysis Report
 
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NUCOR CORP (NUE): Free Stock Analysis Report
 
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