Buy Russel Metals for 2021 recovery

Russel Metals’ earnings per share are expected to decline to $0.63 in 2020 from $1.59 in 2019, and then rebound to $1.56 in 2021, as steel demand and prices gradually improve.

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Russel Metals is one of the largest metals distribution companies in North America.

The pandemic, along with low energy prices, has created challenging business conditions for metals distributor Russel Metals Inc. (TSX—RUS). During the second quarter, demand at the company’s service centres and distribution operations bottomed out in April followed by a modest, but steady, increase throughout the balance of the quarter.

Russel Metals Inc. is one of the largest metals distribution companies in North America. It carries on business in three metals distribution segments: metals service centres, energy products and steel distributors. Its metals service centres carry an extensive line of metals products, its energy products segment carries a specialized product line focused on the needs of energy industry customers, and its steel distributors sell steel in large volumes.

For the second quarter ended June 30, 2020, Russel made $5 million, or $0.07 a share, compared with $31 million, or $0.50 a share, in the same period of 2019.

Decreased demand and lower prices

At the metals service centres segment, the pandemic resulted in decreased demand due to customer plant closures and reduced economic activity. At the energy products segment, lower energy prices negatively impacted rig count and drilling activities, leading to reduced demand for its products. And at the steel distributors segment, revenues fell 36 per cent due to lower demand.

Russel Metals’ earnings per share (EPS) are expected to decline to $0.63 in 2020 from $1.59 in 2019, and then rebound to $1.56 in 2021, as steel demand and prices gradually improve. The stock trades at a high 30.6 times its 2020 estimated EPS, but a much more reasonable 12.3 times its 2021 estimated EPS. The dividend yields 7.9 per cent. Russel Metals is now a buy for growth and income.

This is an edited version of an article that was originally published for subscribers in the October 30, 2020, issue of Money Reporter. You can profit from the award-winning advice subscribers receive regularly in Money Reporter.

Money Reporter, MPL Communications Inc.
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