Why Reliance Steel (RS) Was Upgraded

Updated at 9:40 a.m. to reflect market activity.

NEW YORK (TheStreet) -- Reliance Steel (RS) was upgraded to "buy" from "neutral" by Bank of America/Merrill Lynch Tuesday.

Reliance Steel gained 3.1% to $71.3 in early morning trading.

The bank set a price target of $77 for the steel producer. Analysts noted that shares of Reliance Steel are down 9% year-to-date, but say the company is leveraged to better U.S. demand and a recovery in volume.

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Separately, TheStreet Ratings team rates RELIANCE STEEL & ALUMINUM CO as a Buy with a ratings score of A. TheStreet Ratings Team has this to say about their recommendation:

"We rate RELIANCE STEEL & ALUMINUM CO (RS) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, attractive valuation levels and largely solid financial position with reasonable debt levels by most measures. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 1.9%. Since the same quarter one year prior, revenues rose by 18.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • Despite currently having a low debt-to-equity ratio of 0.56, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Despite the fact that RS's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.68 is high and demonstrates strong liquidity.
  • RELIANCE STEEL & ALUMINUM CO's earnings per share declined by 6.2% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. We feel it is likely to report a decline in earnings in the coming year. During the past fiscal year, RELIANCE STEEL & ALUMINUM CO increased its bottom line by earning $5.34 versus $4.58 in the prior year. For the next year, the market is expecting a contraction of 18.3% in earnings ($4.36 versus $5.34).
  • The company's current return on equity has slightly decreased from the same quarter one year prior. This implies a minor weakness in the organization. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, RELIANCE STEEL & ALUMINUM CO has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • You can view the full analysis from the report here: RS Ratings Report

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