RUSSEL METALS $27.18 (Toronto symbol RUS; TSINetwork Rating: Speculative)(905-819-7777; www.russelmetals.com; Shares outstanding: 61.6 million; Market cap: $1.7 billion; Dividend yield: 5.6%) is one of North America’s largest metal distributors. It serves 39,000 clients at 53 locations in Canada and 12 in the U.S.
In the quarter ended September 30, 2014, Russel’s revenue rose 30.4%, to $1.04 billion from $796.8 million a year earlier. The company’s metal-services business raised its prices in response to higher demand, increasing its revenue by 14%. The energy products division, which supplies pipes for oil and gas drillers, saw its revenue jump 41%.
Earnings gained 74.6%, to $33.0 million, or $0.54 a share. A year earlier, the company earned $18.9 million, or $0.31. Russel has invested in new plants and processing equipment in the past three years, which has cut its costs and improved its efficiency. That’s paying off with higher profit margins.
Russel holds cash of $27.6 million, or $0.45 a share. Its $459.7 million of long-term debt is a reasonable 27% of its market cap.
The company raised its quarterly dividend by 8.6%, to $0.38 from $0.35, with the September 2014 payment. The stock now yields 5.6%.
Russel is cyclical: its sales and profits rise quickly when economic growth pushes up steel prices. Higher prices also raise the value of its extensive inventory.
However, oil and gas clients supply about 35% of Russel’s revenue, which adds to its cyclical risk. The stock has dropped on investor concerns that falling oil prices will slow oil exploration and development, but its long-term outlook remains positive.
Russel Metals is a buy.
