Despite facing a host of challenges in the recent past, such as supply chain disruptions and steep costs for raw materials and transportation, the metal industry is expected to remain resilient. This robustness is primarily attributed to the accelerated pace of worldwide urbanization and infrastructural activities.
In light of these circumstances, let’s evaluate metal stocks such as ESAB Corporation (ESAB), Gibraltar Industries, Inc. (ROCK), and Ryerson Holding Corporation (RYI), which are gaining investor attention. However, before delving into the fundamentals of these pertinent stocks, it is crucial that we first provide an overview of the metal industry.
The metal industry furnishes the manufacturing, construction, automotive, aerospace, and infrastructure industries with indispensable raw materials and components serving as kernels for their production processes.
The metal industry experienced significant strain due to escalating transportation and raw material costs, coupled with geopolitical turmoil-induced supply chain disruptions. These headwinds have severely impacted metal manufacturers’ profit sustainability, posing a substantial challenge for the overall industry.
Nevertheless, the surge in population, accelerating urbanization, and expansive infrastructural development in emerging nations such as China, Brazil, and India are augmenting the demand for metal and steel. Consequently, these factors may keep the industry buoyed in the foreseeable future.
Moreover, emerging and seamlessly incorporating modern technologies could significantly enhance productivity and work efficiency, elevate output levels, and curtail expenses.
The global metal market is anticipated to reach $5.46 trillion by 2027, growing at a CAGR of 6.6% from 2022 to 2027. On top of it, global metal import is set to reach 3.5 billion metric tons by 2026, up from 3.2 billion metric tons in 2021. As of 2022, its demand has grown by 3% each year since 2016.
Furthermore, the SPDR S&P Metals and Mining ETF (XME) has returned 4.6% over the past month, reinforcing the continued investor interest in this sector.
Given the current positive momentum within the metal industry, metal stocks ESAB, ROCK, and RYI, with robust fundamentals, could be wise portfolio additions now.
ESAB Corporation (ESAB)
ESAB formulates, develops, manufactures, and supplies cutting, joining, and automated welding products and equipment. It offers control equipment, software, and digital solutions to enhance customer productivity, remotely monitor welding operations, and digitize documentation.
On May 11, ESAB announced that its Board of Directors had declared a quarterly dividend of $0.06 per share of the company’s common stock, payable to shareholders on July 14. It pays an annual dividend of $0.24, which translates to a 0.36% yield on the current share price. Its four-year average dividend yield is 0.19%.
ESAB’s trailing-12-month EBIT margin of 13.78% is 41.5% higher than the industry average of 9.73%. Furthermore, its trailing-12-month net income and levered FCF margins of 7.61% and 7.98% are 20% and 52.2% higher than the industry averages of 6.35% and 5.24%, respectively.
For the first quarter that ended March 31, 2023, ESAB’s net sales increased 5.6% year-over-year to $684 million, while its gross profit grew 10.3% from the year-ago value to $247.39 million.
The company’s core adjusted EBITDA rose 11.7% from the prior year’s quarter to $112.70 million. Its adjusted free cash flow increased 79.8% year-over-year to $40.10 million.
ESAB’s first-quarter solid performance and market resilience have led to an upward revision in its full-year 2023 outlook. The company now expects total core sales growth between 4% and 6%. Additionally, ESAB foresees core adjusted EBITDA to come in between $430 million and $450 million and core adjusted EPS between $3.85 and $4.05.
The consensus revenue and EPS estimates of $620.16 million and $0.95 for the fiscal third quarter ending September 2023 reflect 7.5% and 3.1% year-over-year improvements, respectively. The company topped the consensus EPS estimates in all four trailing quarters, which is impressive.
The stock has gained 57.8% over the past year to close the last trading session at $65.74. Over the past six months, the stock has gained 26.4%.
ESAB’s positive outlook is reflected in the POWR Ratings. It has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ESAB has a B grade for Momentum, Stability, and Sentiment. It is ranked first out of 31 stocks within the B-rated Industrial – Metals industry.
Click here to access additional ESAB ratings (Growth, Value, and Quality).
Gibraltar Industries, Inc. (ROCK)
ROCK manufactures and distributes building products for the renewable energy, residential, ag-tech, and infrastructure markets in North America and Asia. It operates through four segments: Renewables; Residential; Agtech; and Infrastructure.
ROCK’s trailing-12-month net income margin and levered FCF margin of 6.45% and 7.50% are 1.6% and 43.1% higher than the industry averages of 6.35% and 5.24%, respectively. Likewise, its trailing-12-month asset turnover ratio of 1.11x is 40.4% higher than the industry average of 0.79x.
For the fiscal first quarter (ended March 31, 2023), ROCK’s net sales came in at $293.27 million. The company’s gross profit rose 18.6% over the prior-year quarter to $76.93 million.
Its adjusted net income increased 10.2% over the prior-year quarter to $21.76 million. Its adjusted net income per share came in at $0.70, representing an increase of 16.7% year-over-year. The company’s long-term debt, as of March 31, 2023, stood at $49.88 million, compared to $88.76 million as of December 31, 2022.
For the fiscal year 2023, ROCK expects its consolidated net sales to be between $1.36 billion and $1.41 billion. Whereas its adjusted EPS is expected to be between $3.46 and $3.66.
For the fiscal fourth quarter ending December 2023, ROCK’s revenue and EPS are expected to increase 6.5% and 19.9% year-over-year to $334.10 million and $0.86, respectively. It surpassed Street EPS estimates in three of the trailing four quarters.
Over the past three months, the stock has gained 28.1% to close its last trading session at $59.47. Moreover, the stock has gained 50.3% over the past year.
ROCK’s POWR Ratings reflect solid prospects. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for Momentum and Sentiment and a B for Quality. Within the same industry, it is ranked #3.
To see ROCK’s Growth, Value, and Stability ratings, click here.
Ryerson Holding Corporation (RYI)
RYI and its subsidiaries process and distribute industrial metals in the United States, Canada, Mexico, and China. It offers various products in carbon steel, stainless steel, alloy steel, aluminum, nickel, and red metals in different shapes and forms.
On May 1, RYI declared a quarterly dividend of $0.18 per share of common stock, a 5.9% increase from the previous quarter’s dividend, which was paid on June 15, 2023. This reflects the company’s ability to pay back its shareholders.
It pays an annual dividend of $0.72, which translates to a 1.75% yield on the current share price. Its four-year average dividend yield is 0.56%.
In addition, its board of directors also approved increasing the share repurchase authorization by approximately $80 million to $100 million and extending the term from August 2024 to April 2025. This reflects the company’s strong cash flows.
RYI’s trailing-12-month levered FCF margin of 5.52% is 55.3% higher than the industry average of 3.55%. Likewise, its trailing-12-month ROCE, ROTC, and ROTA of 34.97%, 17.19%, and 11.44% are 227.5%, 182.5%, and 144.3% higher than the industry averages of 10.68%, 6.12%, and 4.68%, respectively.
For the first quarter that ended March 31, 2023, RYI’s net sales amounted to $1.41 billion, while its gross profit stood at $264.20 million. During the same quarter, its adjusted net income and non-GAAP EPS came in at $47.30 million and $1.27, respectively. Also, its total debt stood at $395.10 million, down 28.3% year-over-year.
In addition, its cash and cash equivalents stood at $43.70 million compared to $39.20 million for the period that ended December 31, 2022.
Street expects RYI’s revenue and EPS to come in at $5.24 billion and $3.83, respectively, in the fiscal year that ended December 2023. Also, the company surpassed the consensus revenue estimates in three of the four trailing quarters.
The stock has gained 102% over the past year to close the last trading session at $41.20. It has gained 8.4% over the past month.
It is no surprise that RYI has an overall B rating, which translates to Buy in our proprietary rating system.
RYI has an A grade for Value and B for Momentum, Sentiment, and Quality. Within the same industry, it is ranked #5.
In addition to the POWR Ratings mentioned above, to see RYI ratings for Growth and Stability, click here.
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ESAB shares were trading at $66.68 per share on Monday afternoon, up $0.94 (+1.43%). Year-to-date, ESAB has gained 42.37%, versus a 15.49% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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