The steel industry has witnessed a solid recovery due to rising demand from increasing industrial activity and construction projects over the past few months. This, combined with the world’s largest steel producer China’s curb on output to reduce carbon emissions, is driving steel prices higher. China’s production cuts will likely continue in the second half, creating a big supply crunch and keeping the market red hot.
On the other hand, the Senate’s passage of the $1 Trillion Infrastructure Bill, which allotted $550 billion to improve and develop America’s infrastructure over the next five years, should add to steel demand.
Given this healthy global demand and rising prices, it could be wise to bet on fundamentally sound steel stocks Nucor Corporation (NUE), Ternium S.A. (TX), Reliance Steel & Aluminum Co. (RS), and Commercial Metals Company (CMC).
Nucor Corporation (NUE)
NUE manufactures and sells steel and steel products. The company operates through three segments—Steel Mills; Steel Products; and Raw Materials. It also produces ferrous and nonferrous metals and brokers ferrous and nonferrous metals, pig iron, hot briquetted iron (HBI), and galvanized sheet steel. Its products are sold by its in-house sales force and internal distribution and trading companies.
On August 23, NUE acquired Hannibal Industries, Inc., a leading national provider of steel racking solutions, for a cash purchase price of $370 million. Adding steel racking solutions to its product portfolio expands NUE’s ability to serve its customers in the fast-growing warehouse and distribution market and further complements its current product capabilities.
NUE completed the acquisition of Cornerstone Building Brands’ insulated metal panels (IMP) business for a cash purchase price of approximately $1 billion on August 9. Also, the company has added Cornerstone Building’s CENTRIA and Metl-Span brands to the newly formed Insulated Panel Group, which already includes NUE’s existing IMP business, TrueCore. This acquisition will enable NUE to provide a full range of products to service high-end architectural applications and the quickly expanding cold storage and warehousing markets.
NUE’s net sales for its fiscal second quarter ended July 3, 2021, came in at $8.79 billion, representing a 103.1% year-over-year improvement. The company’s EBIT has been reported at $2.03 billion for the quarter, up 1018.8% from the prior-year period. While its net earnings increased 1080.2% year-over-year to $1.57 billion, its EPS increased 1300% year-over-year to $5.04. As of July 3, 2021, the company had $2.72 billion in cash and cash equivalents.
The consensus EPS estimate of $6.55 for the current quarter ending September 30, 2021, indicates a 900.9% rise from the prior year period. Analysts expect NUE’s revenue to increase 100.4% year-over-year to $9.87 billion in the current quarter. It surpassed Street EPS estimates in each of the trailing four quarters, which is impressive. The stock’s EPS is expected to grow at a rate of 29.1% per annum over the next five years.
The stock has gained 105.2% over the past nine months and 10% over the past month. It closed yesterday’s trading session at $112.18.
NUE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
NUE has an A grade for Growth, and a B grade for Momentum and Quality. In the 33-stock, A-rated Steel industry, it is ranked #23. To see additional POWR Ratings for Stability, Sentiment, and Value for NUE, click here.
Ternium S.A. (TX)
Based in Luxembourg, TX produces iron ore and finished and semi-finished steel products, which are sold directly to steel manufacturers, processors, or end-users primarily in America and Europe. The company offers its products to the construction, automotive, manufacturing, home appliances, packaging, energy, and transport industries.
On August 19, 2021, TX signed a memorandum of understanding with Vale S.A. (VALE) to pursue opportunities for developing steelmaking solutions focused on reducing CO2 emissions. TX and VALE intend to develop economic feasibility studies of potential investments in TX’s iron ore briquetting plant and other plants producing metallic products with low carbon footprint, using Tecnored, HYL, and other technologies for iron reduction. This marks a significant step toward TX’s commitment to reduce by 20% its CO2 emission intensity by 2030.
During the fiscal second quarter ended June 30, 2021, TX’s net sales increased 124.5% year-over-year to $3.92 billion. The company’s gross profit came in at $1.50 billion, representing a 534.6% rise from the prior year period. Its operating income came in at $1.27 billion, up 1838.1% from the prior-year period. TX’s net profit came in at $1.16 billion for the quarter, indicating a 2556.7% year-over-year improvement. Its earnings per ADS increased 2268.2% year-over-year to $5.21. The company had $768.70 million in cash and cash equivalents as of June 30, 2021.
Analysts expect TX’s EPS to grow 569.9% year-over-year to $4.96 in the current quarter ending September 30, 2021. The consensus revenue estimate of $4.12 billion for the current quarter represents a 92.4% rise from the prior year period. The stock surpassed consensus EPS estimates in each of the trailing four quarters. TX’s EPS is expected to grow at a 26.2% rate per annum over the next five years.
TX has gained 86.5% year-to-date and 4.7% over the past month. It ended yesterday’s trading session at $53.59.
It’s no surprise that TX has an overall rating of A, which translates to Strong Buy in our POWR Ratings system. In addition, the stock has an A grade for Quality, and a B grade for Growth, Value, Momentum, and Sentiment. Moreover, the stock is ranked #3 in the same industry. Click here to see additional POWR Ratings in Stability for TX.
Reliance Steel & Aluminum Co. (RS)
RS operates as a metals service center that provides alloy, aluminum, brass, copper, carbon, stainless, specialty steel products, and processing services to general manufacturing, non-residential construction, transportation, aerospace and defense, energy, and electronics semiconductor fabrication, and heavy industries. It also offers precision sheet metal fabrication services, toll processing, and logistics services.
In an announcement dated August 4, 2021, RS entered into a definitive agreement to acquire Merfish United, a leading master distributor of tubular building products in the United States, from One Equity Partners, a middle-market private equity firm. Merfish’s strong management teams with a focus on traditional metals service centers and adjacent business opportunities will support RS’ customer, product, and geographical diversification strategy and significantly increase its exposure to copper and plastic products.
RS’ net sales for the fiscal second quarter ended June 30, 2021, came in at $3.42 billion, representing a 69.3% rise from the prior-year period. The company’s gross profit came in at $1.08 billion for the quarter, indicating a 76.1% rise from the prior year period. Its operating income came in at $460.40 million, representing a 335.4% rise from the prior year period. RS’ non-GAAP net income came in at $328.10 million, up 272.8% from the year-ago period. Its non-GAAP EPS increased 272.1% year-over-year to $5.06. As of June 30, 2021, the company had $727.60 million in cash and cash equivalents.
Analysts expect the stock’s EPS to be $5.69 for the current quarter ending September 30, 2021, indicating a 204.1% rise from the prior year period. It surpassed Street EPS estimates in each of the trailing four quarters. Analysts estimate RS’ revenue to be $3.68 billion for the current quarter, representing a 76.4% improvement year-over-year. The stock’s EPS to grow at a 15% rate per annum over the next five years.
RS has gained 42.5% over the past year and 22.3% over the past nine months. It ended yesterday’s trading session at $148.04.
RS’ POWR Ratings reflect this promising outlook. The stock has an overall rating of B, which translates to Buy. RS has a B grade for Growth, Momentum, and Quality. Moreover, it is ranked #12 in the same industry.
In addition to the POWR Rating grades I’ve highlighted, one can see RS’ ratings for Value, Sentiment, and Stability here.
Commercial Metals Company (CMC)
CMC manufactures, recycles, and markets steel and metal products, rebars, merchant bars, and wire rods, and related materials and services internationally. The company trades primary and secondary metals, steel, ores, concentrates, industrial minerals, ferroalloys, chemicals, and other materials used in various industries.
On May 12, 2021, the Maricopa County Air Quality Department granted an operating air permit to CMC, enabling the company to begin construction of its third technologically advanced micro mill in Arizona. This will be the world’s first micro-mill to produce merchant bar and rebar and will employ the latest in environmentally friendly steelmaking technology, thus further enhancing the low emissions and highly efficient energy consumption of the micro mill process.
For its fiscal third quarter ended May 31, 2021, CMC’s net sales increased 37.5% year-over-year to $1.85 billion. While its adjusted earnings from continuing operations increased 80.6% year-over-year to $127.11 million, its adjusted EPS increased 76.3% year-over-year to $1.04. As of May 31, 2021, the company had $443.12 million in cash and cash equivalents.
Analysts expect the stock’s EPS to come in at $0.87 for the current quarter ending November 30, 2021, representing a 49.2% rise from the prior year period. The consensus revenue estimate of $1.91 billion for the current quarter indicates a 36.9% year-over-year improvement. It surpassed the consensus EPS estimates in each of the trailing four quarters. CMC’s EPS is expected to grow at a rate of 14.8% per annum over the next five years.
CMC has gained 55.3% over the past year and 3.3% over the past nine months. It ended yesterday’s trading session at $31.29.
CMC’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
The stock has a B grade for Growth and Momentum. Click here to see the additional ratings for CMC (Value, Sentiment, Quality, and Stability). CMC is ranked #17 in the same industry.
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NUE shares were trading at $112.39 per share on Thursday afternoon, up $0.21 (+0.19%). Year-to-date, NUE has gained 113.30%, versus a 21.02% rise in the benchmark S&P 500 index during the same period.
About the Author: Sweta Vijayan
Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...
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