Commercial Metals Company (NYSE:CMC), a leading manufacturer of steel reinforcing bars, has been showing stable and promising margin results in the recent quarter in a favorable construction environment. This stability is evident in continuously rising contract bookings and downstream backlogs, indicative of a healthy pipeline of future projects.
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In addition, the company’s stock has garnered momentum, with an 8.19% increase over the past year. The stock trades at a relative and historical discount to free cash flow, reflecting solid underpinnings for long-term investment upside potential.
Commercial Metals’ Leading U.S. Metals and Steel Rebound
Commercial Metals Company (CMC) is North America and Central Europe’s largest manufacturer of steel reinforcing bars (or rebar). It supplies various construction projects supporting structures such as highways, bridges, airports, skyscrapers, sports stadiums, and hospitals across two continents.
The company also produces merchant bars, steel fence posts, and wire rods, positioning itself as a market leader in steel long products. CMC’s Tensar line is renowned for its innovative subgrade soil stabilization and foundation enhancement solutions that are delivered globally. These unique solutions not only help reduce the cost and duration of construction projects but also offer unique environmental benefits compared to traditional alternatives.
The demand for metals and steel in the U.S. is rebounding after a two-year contraction period. Overall output is projected to increase by 3.2% in 2024, followed by a 4.5% increase in 2025. This growth is primarily attributed to government stimulus actions, notably the Inflation Reduction Act.
CMC’s Recent Financial Results
The company recently published its financial results for Q3 FY2024. Reported revenue of $2.08 billion exceeded analysts’ estimates of $2.02 billion. Net earnings of $119.4 million decreased from the prior year’s same-period earnings of $234.0 million, while earnings per share (EPS) of $1.02 were in line with consensus expectations.
As of quarter-end, the company had cash and cash equivalents of $698.3 million and available liquidity of close to $1.5 billion, maintaining a robust balance sheet and liquidity position. Within the same quarter, Commercial Metals repurchased 931,281 of its shares, amounting to $51.8 million, leaving $458.6 million still available for the continuing share repurchase authorization.
Finally, the Board of Directors approved a quarterly dividend of $0.18 per share, marking a dividend yield of approximately 1.21%, to be paid on July 10, 2024. This would be the company’s 239th consecutive quarterly payment!
What Is the Price Target for CMC Stock?
Analysts following the company have been cautiously optimistic about the stock. For instance, BMO Capital analyst Katja Jancic recently reiterated a Market Perform rating and $60.00 price target on the shares, noting the recent beat on revenue estimates compared to disappointing updates by industry peers and expects that the next quarter will be consistent with the most recent one.
Overall, Commercial Metals Company is rated a Moderate Buy based on five analysts’ aggregate recommendations and price targets. The average price target for CMC stock is $63.00, representing a potential upside of 17.12% from current levels.
The stock has been on an upward trajectory, climbing over 82% in the past three years. It trades at the upper end of its 52-week price range of $39.44 – $59.62 while demonstrating ongoing positive price momentum by trading above its 20-day (53.36) and 50-day (54.19) moving averages. It trades at a discount to historical and industry averages based on the P/FCF of 11.56x compared to its historical average of 29.03x and the Steel industry average of 19.76x.
Conclusion on CMC
Commercial Metals Company continues to demonstrate consistent growth, showing remarkable stability and improvements in product margins amid a positive construction climate. CMC’s consistent rise in contract bookings and downstream backlogs indicates a robust pipeline of upcoming projects, reaffirming the basis for continued upside potential.
Furthermore, the stock trades at a discount, suggesting potential gains from the current trading levels. Considering the company’s financial stability, strong demand forecasts, and positive market sentiment, CMC presents a solid investment opportunity in the sector.
