Reliance Steel & Aluminum (RS)
From Cabot Wealth Advisory 7/26/12 Sign up for free Cabot Wealth Advisory
A good example of a high-quality company with a low Price Earnings Growth (PEG) ratio is Reliance Steel & Aluminum (RS). The company has a S&P Quality Ranking of A- or better and its PEG ratio is less than 1.00.
Reliance Steel & Aluminum (RS) is one of the largest metals distributors in the U.S. The company's service centers provide specialized metals processing services and distribute more than 100,000 metal products, made primarily from steel and aluminum.
Standard & Poor's Quality Ranking for Reliance Steel is also A-. My calculation of RS's PEG ratio of 0.72 is based upon a stock price of 44.98, current earnings per share of 5.02, my estimated five-year earnings per share growth rate of 10.3%, and the current dividend yield of 2.2%.
Reliance buys large quantities of raw metals from primary metals producers. The company then sells smaller quantities to clients after cutting and shaping the metals, and performing other services. Reliance sells to a diverse customer base in the machinery, aerospace, oil drilling, mining, farm equipment, and construction industries, and to customers in many other industries.
Reliance has achieved great success by acquiring smaller competitors at bargain prices during the past decade. Sales increased 20% and earnings climbed 35% during the past four quarters ended June 30, 2012. Results were aided by stable pricing and strong demand from customers in the oil and gas, aerospace, and farm and heavy equipment industries. Management expects demand to continue to be strong during the next several quarters.
I expect sales to rise 9% and EPS to advance another 15% during the next 12 months. Reliance's strong balance sheet will enable the company to continue to acquire competitors. The company has acquired several companies thus far in 2012, which bodes well for future results.
RS shares sell at 9.0 times current EPS with a dividend yield of 2.2%. The quarterly dividend was increased from 0.15 to 0.25 on July 26. The company's stock price tends to be volatile, as a result of erratic quarterly earnings, but I believe the current low price and low PEG ratio of 0.72 presents an excellent buying opportunity. Buy RS now.
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|Reliance Steel & Aluminum (RS)
350 South Grand Avenue
Los Angeles, CA 90071
|Index Membership: N/A
Sector: Industrial Goods
Industry: Metal Fabrication
Full Time Employees: 10,650