Reliance Steel & Aluminum Co. (RS Quick QuoteRS - Free Report) is gaining from demand strength in its major end-use markets, a diversified product base and strategic acquisitions amid certain challenges including weak pricing.

Shares of Reliance Steel, a Zacks Rank #3 (Hold) stock, have rallied 36.5% in the past year compared with 9.7% rise of the industry.

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Strong Demand, Acquisitions Aid RS

Reliance Steel is benefiting from strong underlying demand in its major markets. Demand in non-residential construction, the company’s biggest market, increased in the third quarter of 2023. Based on the current sentiment of customers and existing backlogs, the company maintains an optimistic outlook for the fourth quarter, anticipating that non-residential construction activities in the sectors it operates in will remain healthy, with consideration for the usual seasonal variations.

Commercial aerospace demand also remained strong in the third quarter. Reliance expects commercial aerospace demand to stay healthy in the fourth quarter as build rates grow from current levels. Moreover, demand in the company’s aerospace business's military, defense and space segments remains robust, with substantial backlogs.

Reliance Steel is also seeing higher year-over-year demand for toll processing services for the automobile market. The company’s niche position in providing toll processing services to the automotive market, particularly with the ongoing rise in aluminum usage, instills optimism for long-term demand in this sector.

Moreover, RS has been following an aggressive acquisition strategy for a while as part of its core business policy to drive operating results. The acquisitions of Rotax Metals, Admiral Metals and Nu-Tech Precision Metals are in sync with its strategy of investing in high-quality businesses. The acquisition of Southern Steel Supply also expands the company’s reach in the Southern United States and boosts its value-added processing services.

Weak Pricing Ails

Reliance Steel continued to face pricing pressure in the third quarter. Its average selling price per ton sold declined 16% year over year in the quarter. Weaker pricing hurt its sales and bottom line in the third quarter. Reliance Steel expects its average selling price per ton sold to decrease 4-6% sequentially in the fourth quarter. Lower selling prices are expected to affect its fourth-quarter performance. RS sees a modest reduction in its gross profit margin in the fourth quarter due to these declining price trends.

Lower sequential shipments are also expected to impact the company top line in the fourth quarter. Reliance Steel expects a 4-6% decline in tons sold in the fourth quarter from the third quarter, in line with typical seasonal patterns.

Stocks to Consider

Better-ranked stocks worth a look in the basic materials space include Denison Mines Corp. (DNN Quick QuoteDNN - Free Report) , Axalta Coating Systems Ltd. (AXTA Quick QuoteAXTA - Free Report) and Hawkins, Inc. (HWKN Quick QuoteHWKN - Free Report) .

Denison Mines has a projected earnings growth rate of 100% for the current year. DNN has a trailing four-quarter earnings surprise of roughly 225%, on average. The stock is up around 54% in a year. It currently carries a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, the Zacks Consensus Estimate for Axalta Coating Systems’ current-year earnings has been revised upward by 8.2%. AXTA, carrying a Zacks Rank #1, beat the Zacks Consensus Estimate in three of the last four quarters while missing in one quarter, with the average earnings surprise being 6.7%. The company’s shares have gained around 33% in the past year.

Hawkins has a projected earnings growth rate of 21% for the current year. It currently carries a Zacks Rank #2 (Buy). Hawkins has a trailing four-quarter earnings surprise of roughly 27.5%, on average. HWKN shares have rallied around 83% in a year.