On Wednesday, Wolfe Research changed its stance on Reliance Steel & Aluminum (NYSE:RS), moving the rating up from Underperform to Peer Perform following a notable decline in the company's share price. The firm now considers Reliance Steel a solid defensive choice in what is expected to be a tumultuous year for the sector.
Analysts at Wolfe Research have set a fair value range for the stock between $257 and $283, utilizing an 11x multiple of the projected 2025 enterprise value to EBITDA ratio. Currently trading at $271.64 with an EV/EBITDA of 9.85x, InvestingPro analysis suggests the stock is slightly undervalued, aligning with the broader market sentiment.
The upgrade comes after a reassessment of the market conditions and the performance of Reliance Steel's shares. The analysts believe that sheet steel prices, which have been decreasing throughout 2024, are now close to their lowest point. They anticipate a postponed seasonal restocking in the second quarter of the year, which is projected to support a 17% increase in the price of hot rolled coil (HRC) to $800 per short ton, and a slight rise in plate prices to $920 per short ton.
Reliance Steel's stock had fallen by 12% since Wolfe Research downgraded it to Underperform in July. The firm's revision to a Peer Perform rating reflects an adjustment in their outlook based on the recent share price correction and the forecasted improvements in steel prices.
Investors are now looking at a company that seems to have weathered the worst of the price declines and is positioned to benefit from the predicted market changes. The new valuation range provided by Wolfe Research offers a perspective on where the firm sees the stock's value, based on the expected industry performance and company fundamentals for the upcoming year.
For a deeper understanding of Reliance Steel's potential, investors can access the comprehensive Pro Research Report, one of 1,400+ detailed company analyses available on InvestingPro.
In other recent news, Reliance Inc. disclosed its Q3 earnings, reporting non-GAAP earnings per diluted share of $3.64, marking a 21.7% decrease from the previous quarter. Despite challenging market conditions, the company completed four acquisitions and implemented a notable share repurchase plan. Cash flow from operations was reported at $463.9 million, with capital expenditures at $112.8 million. The company also repurchased $951.3 million in shares within the first nine months of 2024.
In terms of future projections, Reliance Inc. anticipates a 6% to 8% decrease in tons sold and a 1.5% to 3.5% drop in average selling prices for Q4. However, non-GAAP earnings for Q4 are forecasted between $2.65 and $2.85 per diluted share. Management expressed optimism about demand in 2025, especially in light of the Presidential election and anticipated lower interest rates.
In other company news, long-standing board member Mark V. Kaminski announced his decision not to seek reelection at the upcoming 2025 Annual Meeting of Stockholders, marking the end of his service period that spanned two decades. The company clarified that Kaminski's retirement is not due to any disagreement with Reliance's operations, policies, or practices.
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