Today’s news: Commercial Metals (CMC) reports third quarter earnings beat; Baker Hughes (BHGE) moves from Hold to Strong Buy.
Commercial Metals Company (CMC – yield 2.8%) reported third quarter adjusted EPS of $0.67, above the consensus estimate of $0.61. Revenue came in on target at $1.6 billion. The market reacted well, with the stock up over 7% and racing toward short-term price resistance at 18.
Commercial Metals is a recycler and manufacturer of steel and metal products, including rebar and fence posts.
In the earnings press release, CEO Barbara R. Smith said, “The strong results for the quarter reflect the strength of construction activity, as well as solid industrial production levels and the resilient U.S. and Polish economies. Our recent acquisition, our greenfield Oklahoma facility, and introduction of hot spooled rebar were all meaningful contributors to top and bottom line financial results. In addition, the fundamentals of the fabrication segment have improved significantly as we have shipped the majority of the lower priced work in our backlog which has resulted in a significant improvement in the segment results.”
“Our outlook for demand remains very positive driven by the continued strength in non-residential construction activity levels in our markets,” said Ms. Smith. “Leveraging the growth in our business from the acquisition, combined with the continued favorable long steel margin environment and improvement in our fabrication segment, we anticipate a strong finish to our fiscal year. We also anticipate that our business will generate strong cash flows, creating the opportunity to reduce our indebtedness levels.”
The company is doing a good job of profitably incorporating last year’s acquisition of rebar assets from Gerdau S.A. The corporate outlook remains bullish. Prior to today’s earnings release, analysts expected full-year EPS to increase 28.9% and 13.8% in fiscal 2019 and 2020, and the 2019 P/E was low at 8.2. Investors can expect Wall Street to make upward revisions to earnings estimates, price targets, and buy/sell recommendations in the coming days, all of which can serve to push the share price a bit higher in the coming weeks.
CMC is an undervalued growth stock with an attractive dividend yield. CMC is rebounding from the May pullback, and could rise as high as 18—where it traded in May—before pulling back and resting. I will be apt to give CMC a Buy recommendation when that pullback occurs. Hold.
IN OTHER NEWS …
News that Iran shot down a U.S. drone, combined with a drop in U.S. crude inventories, is serving to increase oil prices today, causing a surge in oil-related stocks. Our portfolio energy stocks—Baker Hughes (BHGE), Marathon Petroleum (MPC), Schlumberger (SLB) and Total SA (TOT)—are each up 2%-4% today. Each of these stocks has a very strong earnings outlook for 2020 (and some also for 2019), independent of any current boost in energy prices. In this week’s update, I upgraded three of these stocks to Buy recommendations. Today, I’m also upgrading Baker Hughes from Hold to a Strong Buy recommendation. BHGE broke out of a six-week trading range today. As always, expect volatility among energy stocks.