Analyst: Weakness In Reliance Steel & Aluminum Shares Offers Nice Entry Point Ahead Of Key Releases

Reliance Steel & Aluminum Co RS is likely to benefit from incremental strength in service center demand.

The Analyst

Longbow analyst Chris Olin upgraded shares of Reliance Steel & Aluminum from Neutral to Buy, with a $100 price target.

The Thesis

Reliance Steel & Aluminum's fourth quarter results due next week and a strong MSCI monthly report could both serve as near-term catalysts, Olin said in a note. The analyst expects the company to issue positive first quarter guidance.

The analyst sees Reliance as a best-in-class company, with a solid management team, proven track record, necessary product diversification, above-average distribution margins and balance sheet flexibility.

Orders have been trending above expectations, steel prices are moving higher, and the president is likely to rule favorably on the Section-232 investigation before the mid-April deadline, Olin said. He also expects the company to be on the M&A front.

"Demand feedback from our carbon steel contacts and recent HRC spot price movement into February/March reaffirms our bullish thesis on the domestic steel producers," Olin said.

As such, Longbow lowered its 2018 earnings per share forecast by 7 cents to $6.62, premised on updated 1H18 LIFO accounting impact. That said, the first quarter estimate of $1.95 is still above the consensus estimate, the firm added. The firm raised its 2019 earnings per share estimate by 40 cents to $7.18, assuming 2 percent shipment growth.

The Price Action

Reliance Steel & Aluminum shares are up over 4 percent over the past year.

At time of writing, shares were up 1.7 percent to $84.89.

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