* RBC’s Alexander Jackson raised his target for Russel Metals Inc. (
) to $45 from $41, above the $41.21 average, with an “outperform” rating, while Scotia’s Michael Doumet hiked his target to $38.50 from $37 with a “sector perform” rating.
“1Q22 profit levels far exceeded expectations,” said Mr. Doumet. “The Russia-Ukraine war resulted in a supply shock intra-quarter that boosted metal prices. While metal prices have begun to fade since, market conditions/prices – and therefore sales/margins for Russel – should remain above historical levels through 2022. Based on management’s comments, we assume 2Q22 EPS could be as high as (maybe higher than) 1Q22′s. Further, given the backdrop, we forecast strong FCF through 2023, which provides Russel with ample capacity for internal investments and M&A (it had $470 million of total liquidity at the end of Q1).
“The last year has been quite special for Russel. The company smartly divested its OCTG business, collecting cash while maintaining upside exposure. Its MSC gained market share. Its inventory turns have been industry leading and its balance sheet is the best it’s been in years, despite recent completion of a sizable deal. That said, with metal prices fading, upside remains limited, in our view. Longer-term, however, we could see Russel reinvesting its excess capital to compound earnings (and outgrowing its dividend, more meaningfully).”