With Reliance Steel, customizing is the key

Analysts see RS's FY 2008 revenue advancing about 7 to 9%, a downshift from the halcyon 26% revenue growth of FY 2007, due to a decline in steel and aluminum prices. Meanwhile, carbon steel prices should fare better, with some pricing power, and the net result is a slight decline in operating margins.

Meanwhile, Reliance's broad customer base lowers overall client-loss risk, and its spectrum of more than 100,000 products makes it a versatile, customize-oriented, metal processing services company, not a conventional steel operation. Further, RS's strong finances provide another shock absorber/stabilizer, in the event the global economy presents a speed bump or two in 2008-2009. The Reuters FY 2008/FY 2009 EPS consensus estimates for RS are $6.11 to $6.51.

The risks? A failure by distributors to rebuild carbon steel inventories would hurt Reliance's results.

The First Call mean rating for RS is: Buy [7 firms]. Mean 2008 target: $69 [high: $80, low: $59].

Stock Analysis: Reliance is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from RS's shares. Sell/Stop Loss if you were to purchase shares in this company: $43.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.