Today’s news: Commercial Metals (CMC) reports third quarter results; Skechers (SKX) shares up on analyst recommendation.
Commercial Metals (CMC – yield 2.1%) – This morning, the company reported third quarter earnings per share of $0.41 vs. the consensus estimate of $0.42 (August year-end), and revenue of $1.2 billion vs. the expected $1.29 billion. CEO Barbara R. Smith commented, “adjusted EBITDA from continuing operations was the highest since the financial crisis and improved by 56% in comparison to our second quarter of 2018.” The company’s Americas Recycling segment reached its highest level of operating profit since 2011. Strong economies and higher product pricing are expected to contribute to continued revenue growth in the U.S and Poland. Commercial Metals is a recycler and manufacturer of steel and metal products, including rebar and fence posts.
Recent business changes include the start-up of a micro mill in Durant, OK; the pending 2018 closing of the purchase of four rebar mills from Gerdau S.A.; and completion of the sale of Commercial Metals’ structural fabrication business.
Bank of America downgraded CMC this week after the stock’s recent strong run-up and concerns over rebar pricing.
Earnings estimates have been rising since early April, again in recent days, and will invariably be adjusted subsequent to today’s quarterly earnings release. Analysts expect EPS to grow 106% and 56.2% in 2018 and 2019 (August year-end). The 2019 P/E is 9.8.
The stock declined 5% on moderate volume by 12:00 p.m. Eastern time. I’m not alarmed at the earnings report nor at the downturn in the share price, and consider today’s price to represent a buying opportunity. Investors who buy today can potentially earn a 15% profit as CMC returns to its 2018 high of 26. CMC is an extremely undervalued aggressive growth stock, and I plan to keep it in the portfolio longer term. Small-cap stocks can be volatile. If the risk level is appropriate for you, buy CMC now. Strong Buy.
Skechers USA Inc. (SKX) – UBS began coverage on Skechers today with a buy recommendation and a price target of 42. The stock is up about 4% as a result. Skechers is an apparel company that designs and manufactures affordable footwear for people of all ages.
SKX is an undervalued mid-cap growth stock, with minimal debt on the balance sheet. SKX fell in April, then stabilized. Today’s price action could possibly lead to a breakout past 31, which could easily deliver a quick 10% run-up before the stock rests again. I believe the stock could rise as high as 38 this year, but won’t likely surpass 38 until 2019. Buy SKX now. Strong Buy.