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Is Commercial Metals A Buy After Its Earnings Beat?

Commercial Metals Company (CMC) reported better-than-expected earnings and revenue in the last reported quarter. Although analysts expect the company’s earnings and revenue to increase in fiscal 2022, will it be wise to buy the stock now, given its mixed profitability? Read on to learn our view.

Commercial Metals Company (CMC) manufactures, recycles, and fabricates steel and metal products and related materials and services. The company processes and sells ferrous and nonferrous scrap metals to steel mills and foundries, aluminum sheet and ingot manufacturers, brass and bronze ingot makers, copper refineries and mills, and others.

The company recently reported its fiscal third-quarter earnings of $2.61 per share, beating Wall Street's estimate by 41.2%. Revenue for the quarter came in at $2.52 billion, surpassing the consensus estimate by 8.5%.

Analysts expect CMC’s revenue and EPS for fiscal 2022 to grow 29.9% and 92.1% year-over-year, respectively. The stock has gained 0.4% in price year-to-date and 20.9% over the past year to close the last trading session at $36.46. Wall Street analysts expect the stock to hit $44.43 in the near term, indicating a potential upside of 21.8%.

Here’s what could influence CMC’s performance in the upcoming months:

Robust Financials

CMC’s net sales increased 36.3% year-over-year to $2.51 billion for the fiscal third quarter ended May 31, 2022. The company’s adjusted earnings increased 151.9% year-over-year to $320.24 million.

Also, its adjusted EPS came in at $2.61, representing an increase of 150.9% year-over-year. In addition, its adjusted EBITDA increased 110.4% year-over-year to $465.28 million.

Favorable Analyst Estimates

CMC’s EPS and revenue for fiscal 2022 are expected to increase 92.1% and 29.9% year-over-year to $6.78 and $8.74 billion, respectively. It surpassed Street EPS estimates in three of the trailing four quarters.

Discounted Valuation

In terms of forward EV/EBITDA, CMC's 3.48x is 43.8% lower than the 6.20x industry average. Its forward non-GAAP P/E of 4.39x is 57.1% lower than the 10.24x industry average. Also, the stock's 0.61x forward EV/S is 56.6% lower than the 1.42x industry average.

Mixed Profitability

In terms of trailing-12-month gross profit margin, CMC’s 19.82% is 37.7% lower than the 31.85% industry average. Likewise, its 4.11% trailing-12-month Capex/S is 29.1% lower than the industry average of 5.81%.

However, the stock’s trailing-12-month ROCE and ROA came in at 40.80% and 17.71%, compared to the industry averages of 12.91% and 5.22%, respectively.

POWR Ratings Show Promise

CMC has an overall rating of B, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, which each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CMC has a B grade for Growth, in sync with its better-than-expected earnings and revenue. It has a B grade for Sentiment, consistent with analysts’ earnings growth expectations.

Moreover, the stock has a C grade for Quality, in sync with its mixed profitability.

CMC is ranked #20 out of 33 stocks in the A-rated Steel industry. Click here to access CMC’s Value, Momentum, and Stability ratings.

Bottom Line

CMC comfortably surpassed the consensus earnings and revenue estimates in the last reported quarter. According to analysts, the company is expected to report earnings growth this year. Moreover, the stock is currently trading at a discounted valuation. So, we think it could be wise to buy the stock now.

How Does Commercial Metals Company (CMC) Stack Up Against its Peers?

CMC has an overall POWR Rating of B, equating to a Buy rating. You might want to consider investing in the following Steel stocks with an A (Strong Buy) and B (Buy) rating: Voestalpine AG (VLPNY), Acerinox, S.A. (ANIOY), and Russel Metals Inc. (RUSMF).

CMC shares were unchanged in premarket trading Monday. Year-to-date, CMC has gained 1.18%, versus a -22.73% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.


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