SCOTTSDALE, Ariz. - Reliance, Inc. (NYSE: RS), a major metal solutions provider in North America, has announced the signing of an agreement to acquire certain assets of FerrouSouth, a division of Ferragon Corporation. FerrouSouth is recognized for its high-quality flat-rolled steel processing and logistics services, including shipping and warehousing, primarily serving the Southeastern U.S. market.
The acquired operations will be integrated into Feralloy Corporation, a wholly owned subsidiary of Reliance. This move is expected to bolster Feralloy's toll processing capabilities and capacity in the Southeastern region. For the twelve months ending December 31, 2023, FerrouSouth's tolling operation reported net sales of around $15 million.
Karla Lewis, President and CEO of Reliance, expressed confidence that FerrouSouth will experience growth under Feralloy and benefit from Reliance's extensive scale, customer relationships, and expertise. The transaction is poised to close within the next 30 days, pending customary closing conditions. However, financial details of the deal have not been disclosed.
Reliance, founded in 1939, operates over 320 locations across 40 states and 12 countries outside the United States. The company is known for its focus on small orders, quick turnaround, and value-added processing services, catering to a diverse customer base across various industries. In 2023, Reliance reported that approximately 51% of its orders included value-added processing, with around 40% of orders delivered within 24 hours.
In other recent news, Reliance Steel & Aluminum has seen adjustments to its share price targets from two major analysts, KeyBanc and BMO Capital. KeyBanc lowered its target from $341.00 to $325.00, citing a tempered outlook for the carbon steel sector and expectations for further EBITDA normalization in the years 2024-2025.
The firm's revised projections reflect a shift from pricing and spread factors to organic steel volumes, which are now anticipated to be flat or potentially decline year-over-year in 2025.
Similarly, BMO Capital adjusted its price target for Reliance Steel, reducing it to $345 from $355, despite the company's Q1 2024 performance which met its guided range. BMO Capital attributed this adjustment to short-term gross margin pressures and the company's Q2 2024 outlook which fell short of the firm's expectations.
However, both analyst firms maintain a positive outlook on Reliance Steel. KeyBanc continues to support an Overweight rating, while BMO Capital retains an Outperform rating on the stock. BMO Capital underscored Reliance Steel's diversified metals and product mix, focus on small and transactional orders, and expanding value-added processing capabilities as key factors in its ability to deliver consistent results.
InvestingPro Insights
In light of Reliance, Inc.'s latest strategic move to acquire assets from FerrouSouth, a dive into the company's financial health and market performance offers valuable context. With a robust market capitalization of $17.05 billion and a Price/Earnings (P/E) ratio standing at 13.57 for the last twelve months as of Q1 2024, Reliance appears to maintain a solid footing in the market. This P/E ratio, slightly below the industry average, suggests that the company's shares might be reasonably valued in the context of its earnings.
InvestingPro Tips highlight the company's dividend growth, which is notably at 10.0% for the last twelve months as of Q1 2024, reflecting a commitment to returning value to shareholders. Additionally, the Price to Book (P/B) ratio of 2.15 for the same period indicates that investors are paying a little over twice the net asset value for Reliance's shares, which can be attractive for those looking for stable investments in the materials sector.
The company's revenue, however, experienced a downturn, with a -12.23% change for the last twelve months as of Q1 2024. This is a metric that potential investors should watch, especially in the context of the recent acquisition which aims to bolster the company's services and market reach. The acquisition's success could be pivotal in reversing this trend and propelling future growth.
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