Historic labor shortages, deepening supply chain disruptions, and increasing input costs have primarily affected the industrial sector in the first half of 2022. However, the industrial sector is expected to grow in the second half of this year amid substantial demand for industrial goods and economic activities regaining traction.
Industrial production in the United States grew 5.8% year-over-year in May, following a 6.3% increase in April.
Furthermore, accelerating digital technology adoption to bring operational efficiencies to scale, remaking supply chains, elevating sustainability in manufacturing by adopting ESG policies, and favorable government policies to support domestic industrial production should boost the sector’s growth.
Friedman Industries, Incorporated (FRD)
FRD engages in steel processing, pipe manufacturing and processing, and the steel and pipe distribution businesses in the U.S. The company operates through two segments: Coil; and Tubular. The Coil segment involves converting steel coils into flat sheet and plate sheet cuts. The Tubular segment produces line and oil country pipes for structural applications.
On May 02, 2022, FRD acquired two high-quality, strategically located facilities from Plateplus, Inc. In addition to the facilities acquired, FRD purchased the steel inventory and customer relationships at Plateplus’ Loudon and Houston locations.
This acquisition might position the company as a leading North American steel service center with an expanded geographic presence, scale, and processing capabilities.
In the fiscal 2022 third quarter ended December 31, 2021, FRD’s net sales increased 181.2% year-over-year to $51.66 million. The company’s coil segment sales grew 92.9% from the year-ago value to $41.80 million, and its tubular segment sales rose 44.4% year-over-year to $9.86 million.
FRD is relatively undervalued compared to its peers. In terms of trailing-12-month EV/EBITDA, FRD is currently trading at 1.42x, 79.9% lower than the industry average of 7.04x. Its trailing-12-month Price/Sales multiple of 0.22 is 82.6% lower than the industry average of 1.26x. Its trailing-12-month Price/Book ratio of 0.62 compared with the industry average of 1.91.
The stock has declined 11.5% over the past month and 12.6% year-to-date to close the last trading session at $8.20.
FRD’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, which translates to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
FRD has a grade of A for Value, Growth, and Momentum and B for Quality. Within the A-rated Steel industry, it is ranked #9 of 33 stocks. Click here to access additional POWR Ratings (Stability and Sentiment) for FRD.
Nippon Steel Corporation (NPSCY)
Headquartered in Tokyo, Japan, NPSCY engages in steelmaking and steel fabrication, engineering and construction, chemicals and materials, and system solutions businesses internationally. The company offers steel plates, titanium, stainless products, and machinery parts. In addition, it sells industrial machinery, equipment and steel structures, and coal-based chemical products.
On May 10, 2022, NPSCY’s Board of Directors declared a year-end dividend of ¥90 ($0.67) per share to be paid on June 24, 2022, indicating an increase of ¥20 ($0.15) per share from the previous dividend forecast.
The increase in dividend payment is based on the improvement in business performance since the previous forecast announcement and commitment to maintaining a high-level return to shareholders.
NPSCY’s revenue increased 41% year-over-year to ¥1,221.56 billion ($9.05 billion) for the fiscal year 2022, which ended March 31, 2022. Its operating profit rose 7,288.6% year-over-year to ¥840.90 billion ($6.23 billion). In addition, the company’s profit for the year and earnings per share came in at ¥667.53 billion ($4.95 billion) and ¥657.48, registering a rise of 3,553.9% and 1,966.8% from the previous year, respectively.
NPSCY is trading at a discount to its peers. In terms of forward EV/Sales, NPSCY is currently trading at 0.87x, 38.9% lower than the industry average of 1.42x. Its forward EV/EBITDA multiple of 4.92 is 20.4% lower than the industry average of 6.18x. Its forward Price/Sales ratio of 0.35 compared with the industry average of 1.21.
Analysts expect NPSCY’s revenue for the fiscal 2023 first quarter ending June 2022 to come in at $14.47 billion, representing a 5% rise year-over-year.
NPSCY’s shares have decreased 13.3% over the past month to close the last trading session at $14.86.
NPSCY’s POWR Ratings reflect a strong outlook. The stock has an overall B rating, which translates to Buy in our POWR Ratings system.
NPSCY has a grade of A for Stability and Value. It has a B grade for Momentum. It is ranked #10 of 32 stocks in the A-rated Steel industry. Click here to access NPSCY’s POWR Ratings for Sentiment, Growth, and Quality.
Reliance Steel & Aluminum Co. (RS)
RS operates internationally as a diversified metal solutions provider and a metals service center company. The company distributes approximately 100,000 metal products, including alloy, aluminum, copper, carbon steel, titanium, and specialty steel products. RS operates a network of roughly 315 locations in 40 states in the U.S. and 13 in other countries.
On February 15, RS increased its regular quarterly dividend by 27.3% to $0.875 per share of common stock. The company has paid quarterly cash dividends for 63 consecutive years and has increased the dividend 29 times since its 1994 IPO. This reflects RS’s healthy cash flows and strong financial position.
In the fiscal 2022 first quarter ended March 31, 2022, RS’s net sales grew 58% year-over-year to $4.49 billion, and gross margin increased 45.4% year-over-year to $1.39 billion.
The company’s EBITDA improved 139.3% from the year-ago value to $2.52 billion. Its non-GAAP net income attributable to Reliance rose 99.1% year-over-year to $528.70 million. Furthermore, its non-GAAP EPS came in at $8.42, up 105.4% year-over-year.
In terms of forward non-GAAP P/E, RS is currently trading at 5.70x, 44.3% lower than the industry average of 10.24x. Its forward EV/Sales multiple of 0.70 is 50.8% lower than the industry average of 1.42x. Its forward EV/EBITDA ratio of 4.37 compared with the industry average of 6.18.
The consensus revenue estimate of $4.61 billion for the fiscal 2022 second quarter, ending June 2022, represents a 34.8% growth from the same period in 2021. Analysts expect RS’s EPS for the ongoing quarter to be $9.02, representing a 78.2% rise year-over-year. The company has surpassed the consensus revenue and EPS estimates in each of the trailing four quarters.
The stock has plunged 10.9% over the past six months and 13.4% over the past year and closed the last trading session at $170.10.
RS’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall grade of B, equating to a Buy in our proprietary rating system.
RS has a grade of B for Growth, Momentum, Quality, and Sentiment. Within the same industry, it is ranked #7 of 32 stocks. To see additional POWR Ratings (Stability and Value) for RS, click here.
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FRD shares were trading at $8.19 per share on Tuesday afternoon, down $0.01 (-0.12%). Year-to-date, FRD has declined -12.34%, versus a -20.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Mangeet Kaur Bouns
Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions. More...
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