Russel Metals $18.27 - Toronto symbol RUS

RUSSEL METALS $18.27 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 61.7 million; Market cap: $987.9 million; Dividend yield: 8.3%) is one of North America’s largest metal distributors, serving 39,000 clients at 53 locations in Canada and 12 in the U.S. In the three months ended December 31, 2015, Russel’s revenue fell 33.6%, to $673.0 million from $1.01 billion a year earlier. Sales mainly declined because revenue fell 43% at the company’s energy products division. That unit sells pipes to oil and natural gas drillers. Earnings, excluding one-time items, dropped sharply, to $10.0 million, or $0.16 a share, from $38.0 million, or $0.62. Russel’s earnings fell faster than revenue because steel prices moved down in the latest quarter. That hurts its profit margins and causes it to suffer losses on its inventory. Russel holds cash of $143.4 million, or $2.32 a share, and its $295.2 million of long-term debt is a reasonable 30% of its market cap. The stock yields a high 8.3%, and its dividend looks safe: the company’s management recently said it believes the payout is sustainable through 2016. Oil and gas clients supply about 35% of Russel’s revenue, which adds to its cyclical risk. The stock has dropped on investor concern that low oil prices will keep slowing exploration and development, but the company’s long-term outlook remains positive. Russel Metals is a buy.

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