Russell Metals’ recent $225 million acquisition of seven strategic service centers is a sound one, expected to be a strong fit with the company’s current footprint.
The stock trades at 10.5 times the company’s forward earnings forecast. This reasonable valuation, combined with significant revenue growth from the recent acquisition, suggests substantial upside potential for investors entering at current levels.
The company’s recent 5% dividend increase to $0.42 quarterly ($1.68 annually) also demonstrates its commitment to shareholder returns.
RUSSEL METALS INC. (Toronto symbol RUS; www.russelmetals.com) is a leading metals distributor in North America, with 33,000 clients at 48 locations in Canada and 16 others in the U.S.
Russel has now completed its acquisition of seven service-centre locations from Samuel, Son & Co. for $225 million. The purchase closed in August 2024.
Russel has acquired Samuel’s metals service centres in Winnipeg, Calgary, Nisku (Alberta), Langley (BC), Surrey, Buffalo (New York) and Pittsburgh. Samuel will retain its location in Delta (B.C.) and conduct an orderly shut-down of that facility.
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Dividend Stocks: Russell Metals’ attractive valuation and yield offers a compelling entry point
In Western Canada, Samuel’s five locations will be a strong fit with Russel’s current footprint, including providing new opportunities to benefit from Samuel’s focus on non-ferrous products and Russel’s focus on value-added processing. In the U.S. Northeast, the two locations will provide an eastern extension of Russel’s existing operations in the U.S. Midwest.
In the three months ended September 30, 2024, revenue fell 1.8%, to $1.09 billion from $1.11 billion a year earlier. The company’s sales mainly declined because of lower steel prices.
Overall earnings in the latest quarter were $34.5 million, or $0.59 a share. That’s a 43.1% decrease from $60.6 million, or $0.99, a year earlier. The drop came from the lower sales as well as lower sales of high-profit-margin products due to industry competition and current oversupply in the market.
Meanwhile, the long-term outlook for Russel is positive, and the stock trades at just 10.5 times the 2025 forecast earnings of $4.10 a share.
With the June 2024 payment, Russel raised your quarterly dividend by 5.0%, to $0.42 a share from $0.40. The new annual rate of $1.68 yields an attractive 3.9%.
Russel Metals has now increased its dividend by an average 2.0% annually over the past five years. Its TSI Dividend Sustainability Rating is Above Average.
Recommendation in Power Growth Investor: Russel Metals Inc. is a buy.
