RS is overdue for a shift in analyst attention
Reliance Steel & Aluminum Co. (NYSE:RS) is the largest metals service center operator in North America. The company will step into the earnings confessional tomorrow, April 22, before the market opens.. Reliance has managed to outperform earnings expectations on three out of the last four earnings reports. For the first quarter of 2020, Reliance Steel & Aluminum beat analyst estimates by a margin of $0.35 and reported earnings of $2.45 per share. For the second quarter of 2020, RS' earnings per share (EPS) decreased to $1.36 but still beat expectations by a margin of $0.96. For the third quarter of 2020, Reliance Steel & Aluminum reported an increase in earnings, rising to $1.87 per share and beating estimates by a margin of $0.27. In the most recent quarterly report, Reliance Steel & Aluminum posted an EPS of $2.01 and missed expectations by a slight margin of $0.01.
Despite those earnings beats, RS averages a post-earnings move of only 5.1% in the last eight quarters, regardless of direction. This includes a 4.5% gain back in July, as well as a 6.7% drop back in February 2020.
On the charts, RS kicked off April with a record high of $159.02 on April 5. The shares are up 83% year-over-year, and recent consolidation has been met with support at their 30-day moving average. Despite the channel of higher highs, three of four analysts in coverage maintain a tepid "hold" stance on RS.
Reliance Steel & Aluminum also offers a $2.75 forward dividend, equivalent to a 1.80% dividend yield. From a fundamental point of view of the company, Reliance has been on the decline in recent years. In 2020, revenues fell 20% and net income decreased a massive 47.4%. In addition, RS' revenues are down 24% since 2018. Despite all that, Reliance Steel & Aluminum stock has reached new all-time highs and is currently trading at a sky-high price-earning ratio of 27.01. However, the forward price-earnings ratio of 18.05 suggests a quick recovery on the bottom-line. Overall, the company will likely recover in the long run, but RS does not offer the best return potential at the moment.