* Scotia Capital analyst Michael Doumet bumped up his target for Russel Metals Inc. (
) to $34 from $32, keeping a “sector perform” rating. The average is $35.04.
“For Russel, higher steel prices (and inventory gains) can reliably produce higher earnings,” he said. “That will play out in 2Q21. HRC and plate prices are at an all-time high advancing 23 per cent and 32 per cent, respectively, through the quarter. While the percentage increase was below that of 1Q21 (i.e. 47 per cent and 57 per cent), the dollar appreciation was similar. To us – holding all else constant – that will translate into higher revenues, lower margins, and similar operating profit in 2Q21 versus 1Q21. While ahead of consensus for 2Q21 (we forecast EBIT of $117 million versus $103 million), we believe gross margin compression from steel price normalization and the flow through of higher cost inventories (in 2H21) remains an overhang. Further, while a higher trading multiple is justified to us, given the cleaner, less-cyclical, higher-return nature of the business, we believe RUS shares are fairly valued.”