Monday, KeyBanc Capital upgraded Reliance Steel & Aluminum Co. (RS) shares to Buy from Hold with a price target of $54. The brokerage increased its 2009 EPS estimate to $1.35 from $0.85, and its 2010 estimate to $2.85 from $2.60.
Analyst Mark Parr upgraded the stock in light of more broad-based demand stabilization and internal execution. The analyst established a price target of $54, which represents 10x EV/EBITDA on his 2010 outlook.
Although this falls above the high end of a historical normalized 5-8x range, the analyst views 2010 as indicative of the early stages of macro recovery. Further, RS shares traded at an average multiple of 10x during the 2001-2003 downturn. The analyst's improved near-term view yields stronger third quarter/fourth quarter bottom line recovery relative to his prior estimates and consensus.
The analyst senses RS is poised to benefit from increased potential for more broad-based demand recovery emerging over the next several quarters, substantial resolution of inventory mismatches, and restoration of more normalized FIFO gross margins, which strongly emerged during July and could be further enhanced over the balance of 2009.
Currently, RS is up $0.24 or 0.56% and trading at $42.84.
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