RUSSEL METALS $29.20 - Toronto symbol RUS

RUSSEL METALS $29.20 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 60.2 million; Market cap: $1.8 billion; Dividend yield: 4.8%) is one of North America’s largest metal distributors. The company serves its roughly 33,000 customers through 51 locations in Canada and 12 in the U.S.

In the three months ended September 30, 2012, Russel’s revenue rose 1.0%, to $712.6 million from $705.4 million a year earlier. Revenue at its steel distribution division fell 12%, and sales at the metal services business declined 2%. That’s because the slower economy pushed down steel demand. However, the energy tubular products division, which supplies pipes for oil and gas exploration and development, saw its revenue rise 12% on higher drilling activity.

Earnings fell 12.5%, to $22.5 million, or $0.37 a share. A year earlier, Russel earned $25.7 million, or $0.43 a share. The company’s earnings fell even with the higher revenue because steel prices declined in the latest quarter. That cuts Russel’s profit margins and causes it to suffer losses on its current inventory.

Russel holds cash of $247.1 million, or $4.11 a share. Its long-term debt of $451.4 million is a reasonable 25.1% of its market cap. The stock yields 4.8%.

The company gets 30% of its revenue from clients in the oil and gas drilling industry. That, plus its exposure to fluctuating steel prices, adds risk. However, its long-term outlook remains positive, and it’s well positioned to gain as the economy recovers.

Russel Metals is still a buy.

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