Topics Growth Stocks

Russel Metals $23 - Toronto symbol RUS

RUSSEL METALS $23.00 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 61.7 million; Market cap: $1.5 billion; Dividend yield: 6.6%) is one of North America’s largest metal distributors, serving over 39,000 clients at 53 locations in Canada and 12 in the U.S.

In the three months ended March 31, 2016, Russel’s revenue fell 26.8%, to $662.1 million from $903.9 million a year earlier. The company’s sales mainly declined because revenue from its energy products business fell 35%. It supplies pipes for oil and gas drillers.

Earnings for the quarter dropped to $7.8 million, or $0.13 a share. That’s a sharp decline of 57.8% from $18.5 million, or $0.30, a year earlier. Russel’s earnings fell faster than its revenue because steel prices moved down. That means the company’s existing inventory— bought at higher prices—was worth less. Russel was then forced to sell that steel to clients at current prices, for a lower profit.

Steel prices are rebounding

The company holds cash of $140.7 million, or $2.28 a share, and its $295.4 million of long-term debt is a reasonable 20% of its market cap. The stock yields a high 6.6%, and the company’s management believes the payout is sustainable through 2016.

Oil and gas clients supply about 35% of Russel’s revenue. That adds to its cyclical risk. However, this business remains profitable for the company. Meanwhile, steel prices are now moving up as demand in China, especially for housing, continues to rebound.

Russel Metals is a buy.

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