Commercial Metals (CMC) is at the right place, at the right time.
The place is the steel manufacturing and metal recycling markets, benefiting from a recovery in the global economy, and the sustainable development movement.
The time is the last 12 months, that have seen steel and scrap metal prices rising more than 60%. I’m bullish on CMC. (See Insiders’ Hot Stocks on TipRanks)
Solid Performance
Last week, CMC reported solid Q4 financial results. Earnings came in at $152.3 million, or $1.24 per diluted share, on net sales of $2 billion.
That compares with $67.8 million, or $0.56 per diluted share a year ago, on net sales of $1.4 billion.
CMC earned $412.9 million for the whole year, or $3.38 per diluted share, up from $278.3 million, or $2.31 per diluted share in the previous year.
Margins over scrap costs on steel products got a big boost from both higher volume and higher prices. Mill volume growth was up 5% from the fourth quarter of fiscal 2020, as the average selling price rose by $300 per ton.
“CMC’s performance during fiscal 2021 was exceptional,” said Barbara R. Smith, president and CEO of CMC. “Our financial results once again demonstrate CMC’s significantly enhanced earnings capabilities following several years of methodical strategic transformation.”
Solid performance has boosted the company’s free cash flow, and allowed management to extend both a dividend hike, and a stock buyback program, which are expected to enhance shareholder value.
“This action was made possible by the strategic transformation carried out over the last several years, which has greatly enhanced our Company’s earnings capability and cash flow profile,” said Smith. “Looking ahead, we believe CMC is well-positioned to achieve our key strategic goals of identifying, funding and executing on attractive growth opportunities, maintaining strong returns over the economic cycle and providing shareholders with attractive cash returns, while maintaining a high-quality balance sheet.”
The company expects volumes to remain solid in 2022, helped by a construction backlog in North America, and continuing strength in European markets.
Wall Street’s Take
Wall Street has been warming up to CMC’s solid performance, sending its shares up 55.3% over the last 12 months. While these gains may sound impressive, they lag behind the industry gains.
What’s Wall Street missing? CMC is a rather conservative bet in a highly cyclical industry, as reflected in the low beta of CMC’s stock, compared to its peer group.
CMC has little following in the analyst community. Only two analysts followed its shares in the last three months, and both have assigned a Hold rating.
The average Commercial Metals price target is $34.50, with a high forecast of $36, and a low forecast of $33. The average price target implies 9.9% upside potential.
Bottom Line
CMC is well-positioned to benefit from the recovery in steel and metal recycling industries, nicely rewarding long-term investors.
Disclosure: At the time of publication, Panos Mourdoukoutas owned shares of Commercial Metals.
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