On Monday, Reliance Steel & Aluminum (NYSE:RS) saw its price target adjusted by KeyBanc, with a new target set at $325, down from the previous $335. The firm maintained an Overweight rating on the company's stock despite the adjustment. The revision follows the completion of KeyBanc's third-quarter Sheet on the Street Survey, which included a review of carbon sheet product distributors and additional due diligence efforts.
KeyBanc's analysis suggests a balanced perspective on carbon steel equities, predicting sector EBITDA normalization within the 2024-2025 timeframe. The report indicates that the main factor influencing earnings volatility in 2024 will be related to pricing and spread variations. Additionally, a potential decrease in steel volume and lost operating leverage are highlighted as contributing factors.
The survey also revealed that automobile industry growth is reaching a plateau, and the broader industrial demand is showing signs of weakness. KeyBanc notes a downward trend in carbon steel pricing. Despite these challenges, the firm remains positive on Reliance Steel, supporting its Overweight rating but with a reduced earnings estimate.
The announcement details the changes in estimates and price targets for the sector, including the rationale behind the adjustments. KeyBanc's survey findings and due diligence have led to the revised outlook, with the firm continuing to watch the market indicators closely.
In other recent news, Reliance, Inc. has secured a $1.5 billion unsecured revolving credit facility to support its corporate initiatives and improve liquidity. The credit agreement, facilitated by Bank of America N.A., JPMorgan Chase (NYSE:JPM) Bank, N.A., and Wells Fargo Bank, among others, is expected to enhance the company's capacity for capital allocation.
Simultaneously, Wolfe Research has downgraded Reliance Steel & Aluminum from Peer Perform to Underperform due to anticipated risks to margins and conservative steel price forecasts. The firm's analysts project a significant decrease in the company's free cash flow and share buybacks in the coming years, with estimated EBITDA for 2024 and 2025 standing at $1.51 billion and $1.46 billion respectively.
In the backdrop of these developments, Reliance reported mixed Q2 2024 results. Despite strategic growth through acquisitions, the company faced a challenging pricing environment, leading to non-GAAP diluted earnings per share falling slightly below the expected range. The company anticipates continued margin pressures in the upcoming third quarter due to stable demand but lower prices for carbon steel products.
InvestingPro Insights
Reliance Steel & Aluminum's financial metrics and market performance offer additional context to KeyBanc's analysis. The company's P/E ratio of 14.66 suggests a relatively modest valuation, which aligns with KeyBanc's maintained Overweight rating despite the reduced price target. This valuation metric could indicate potential upside if the company navigates the anticipated market challenges effectively.
InvestingPro Tips highlight that Reliance Steel has demonstrated strong dividend growth, with a 10% increase in the last twelve months. This trend, coupled with a current dividend yield of 1.51%, may appeal to income-focused investors, especially in a potentially volatile market environment as predicted by KeyBanc's survey.
Additionally, the company's return on assets of 10.93% for the last twelve months ending Q2 2024 indicates efficient use of its assets, which could be a positive factor as the industry faces potential volume decreases and lost operating leverage.
For investors seeking a more comprehensive analysis, InvestingPro offers 15 additional tips for Reliance Steel & Aluminum, providing a deeper understanding of the company's position in the evolving steel market landscape.
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