Unparalleled market fluctuations last year significantly impacted the steel industry. However, as China revitalizes its economy and the U.S. government underscores its commitment to infrastructure enhancement, a growth in steel demand is anticipated.
Given this backdrop, let us explore steel stocks such as Reliance Steel & Aluminum Co. (RS), Aperam S.A. (APEMY), and Olympic Steel, Inc. (ZEUS) now.
Before delving deeper into the details of the aforementioned stocks and their fundamentals, let’s first discuss the imminent growth prospects that the steel industry beholds.
Steel serves as the backbone of contemporary industries and economies, providing an indispensable element for improving structures, manufacturing vehicles, and creating various other appliances and infrastructures that are integral to our daily life.
Increasing demand from the building and the recovering construction industry and booming automotive production are poised to drive steel industry growth in the foreseeable future.
As per the World Steel Association, demand for steel worldwide is anticipated to grow by 2.3% in 2023 and 1.7% in 2024. Amid this, U.S. steel demand is expected to grow by 1.3% and 2.5% in 2023 and 2024, respectively.
Moreover, due to the Biden administration’s Infrastructure Law, the U.S. economy is expected to gain momentum, which could affect the steel production and consumption industry. Furthermore, the global steel market is expected to reach above $910 billion by 2029 at a 5.4% CAGR.
Given this backdrop, quality steel stock RS, APEMY, and ZEUS could be solid buys this week.
Reliance Steel & Aluminum Co. (RS)
RS operates as a diversified metal solutions provider and metals service center company. The company distributes a line of approximately 100,000 metal products and provides metals processing services to general manufacturing, non-residential construction, transportation, aerospace, energy, electronics and semiconductor fabrication, and heavy industries.
On May 1, RS announced the acquisition of all the outstanding equity interests of Southern Steel Supply, LLC, a metals service center.
RS’ President and CEO, Karla Lewis, commented, “Southern Steel’s reputation for on-time delivery and superior customer service aligns well with our business model and disciplined methodology of acquiring high-quality companies with strong management teams that expand Reliance’s geographic footprint and value-added processing capabilities.”
On April 25, RS’ Board of Directors declared a quarterly dividend of $1 per share of common stock, which was paid to the shareholders on June 9. RS has paid regular quarterly dividends for 64 consecutive years without reduction or suspension and has increased the dividend 30 times since its 1994 IPO to a current annual rate of $4 per share.
Its forward dividend yield is 1.42% on current prices, while its four-year average yield is 1.88%. The company’s dividend payouts have grown at a CAGR of 16.9% over the past three years and 14.6% over the past five years.
RS’ trailing-12-month EBIT margin of 13.96% is 21% higher than the 11.53% industry average. Its trailing-12-month levered FCF margin of 8.55% is 140.6% higher than the 3.55% industry average. Likewise, its trailing-12-month cash from operations of $2.10 billion is 487.5% higher than the industry average of $357.30 million.
RS’ net sales for the fiscal first quarter (ended March 31, 2023) stood at $3.97 billion, while its operating income came in at $513.60 million. The company’s non-GAAP net income attributable to RS and non-GAAP EPS came in at $379.50 million and $6.37, respectively.
Moreover, its cash and cash equivalents stood at $816.20 million, up 48.9% year-over-year for the same quarter. Furthermore, the company’s total current liabilities stood at $975.40 million as of March 31, 2023, compared to $1.38 billion as of December 31, 2022.
For the fiscal third quarter ending September 2023, RS’ revenue and EPS are expected to be $3.62 billion and $5.48, respectively. Moreover, it surpassed its consensus EPS estimates in each of the four trailing quarters and revenue in three of the four trailing quarters, which is impressive.
Over the past year, the stock has gained 63.7% to close the last trading session at $283.32. The stock has gained 32.9% over the past six months.
RS’ 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 assess stocks by 118 different factors, each with its own weighting.
The company has a B grade for Momentum, Sentiment, and Quality. Within the A-rated Steel industry, it is ranked #9 out of 34 stocks.
We have also given RS grades for Growth, Value, and Stability. Get all RS ratings here.
Aperam S.A. (APEMY)
Headquartered in Luxembourg City, Luxembourg, APEMY, together with its subsidiaries, engages in producing and selling stainless and specialty steel products worldwide. It operates through four segments: Stainless & Electrical Steel; Services & Solutions; Alloys & Specialties; and Recycling & Renewables.
APEMY’s trailing-12-month levered FCF margin of 3.79% is 6.6% higher than the 3.55% industry average. Likewise, its ROCE, ROTC, and ROTA of 17.26%, 9.26%, and 11.18% are 61.6%, 51.4%, and 138.8% higher than the industry averages of 10.68%, 6.12%, and 4.68%, respectively.
APEMY pays an annual dividend of $2.14, which translates to a forward dividend yield of 6.89% on the current prices. Its four-year average yield is 5.90%. The company’s dividend payouts have grown at a CAGR of 2.6% over the past three years and 4.8% over the past five years.
APEMY’s net sales for the fiscal first quarter that ended March 31, 2023, came in at €1.88 billion ($2.04 billion). Its operating income came in at €81 million ($88.21 million). The company’s adjusted net income came in at €132 million ($143.76 million). Its adjusted EPS stood at €1.83.
The company’s adjusted EBITDA came in at €127 million ($138.31 million). Moreover, as of March 31, 2023, the company’s total current assets and working capital stood at €2.52 billion ($2.75 billion), compared to €2.50 billion ($2.72 billion) as of December 31, 2022.
Analysts expect APEMY’s revenue for the fiscal year ending December 2023 to be $7.76 billion. For the fiscal year ending December 2024, it is expected to increase 2.3% year-over-year to $7.94 billion.
Over the past year, the stock has gained 19.7% to close the last trading session at $31.90. The stock gained marginally intraday.
APEMY’s promising outlook is reflected in its POWR Ratings. The stock has an overall rating of B, which translates to Buy in our proprietary rating system.
It has an A grade for Value and B for Momentum and Stability. It is ranked #15 within the same industry.
To see APEMY’s ratings for Growth, Sentiment, and Quality, click here.
Olympic Steel, Inc. (ZEUS)
ZEUS processes, distributes, and stores metal products in the United States and internationally. It operates in three segments: Carbon Flat Products; Specialty Metals Flat Products; and Tubular and Pipe Products.
ZEUS’ Board of Directors approved a regular quarterly cash dividend of $0.125 per share, which was paid to the shareholders on June 15. The company has paid a regular quarterly dividend since March 2006.
It pays an annual dividend of $0.50 per share, which translates to a dividend yield of 0.96% on current prices. Its four-year average yield is 0.62%. The company’s dividend payouts have grown at a CAGR of 75.2% over the past three years and 40% over the past five years.
ZEUS’ trailing-12-month levered FCF margin of 7.31% is 105.8% higher than the 3.55% industry average. Moreover, its trailing-12-month ROCE, ROTC, and ROTA of 12.86%, 7.93%, and 6.18% are 20.4%, 29.6%, and 32.1% higher than the industry averages of 10.68%, 6.12%, and 4.68%, respectively.
ZEUS’ net sales for the fiscal first quarter that ended March 31, 2023, stood at $573.08 million, while its operating income came in at $17.72 million. The company’s adjusted EBITDA stood at $28.56 million.
The company’s net income and adjusted net income per share came in at $9.87 million and $1.15, respectively. Its cash and cash equivalents stood at $18.41 million, up 129.9% year-over-year for the same quarter.
Furthermore, the company’s total current assets stood at $669.50 million as of March 31, 2023, compared to $ 658.19 million as of December 31, 2022.
Analysts expect ZEUS’ EPS for the fiscal fourth quarter ending December 2023 to increase 150% year-over-year to $0.70, while its revenue is expected to come in at $513.70 million. It surpassed consensus EPS estimates in each of the four trailing quarters.
Over the past year, the stock has gained 108.7% to close its last trading session at $52.09. The stock has gained 33.4% over the past six months.
It is no surprise that ZEUS has an overall rating of B, which translates to Buy in our POWR Ratings system.
ZEUS has an A grade for Value and a B for Momentum. It is ranked #19 within the same industry.
Click here to get ZEUS’ additional ratings for Growth, Stability, Sentiment, and Quality.
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RS shares were trading at $283.80 per share on Thursday afternoon, up $0.48 (+0.17%). Year-to-date, RS has gained 41.33%, versus a 18.24% 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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