Commercial Metals Company (NYSE: CMC) reported its fiscal Q3 2022 earnings on Thursday, March 17, 2022, in which the company earnings topped estimates:
What to look for: during the quarter bottom line grew 132% YoY attributed to end-market solid demand and efficient operational execution. The company anticipates solid demand in all its leading product lines to sustain through spring and summer building season driven by its growing downstream backlog as well as enhanced levels of work in the project pipeline. In addition, equally seasonal factors are expected to boost steel shipment volumes throughout the third quarter.
Earnings: Stockearning’s estimated EPS was pegged at $1.28, but the company produced $1.53 per share earnings. Including one-time items, Commercial Metals Company had earnings of $3.12 per share in Q2 2022 relative to $0.54 a year before. In the second quarter, the company produced an earnings surprise of 19.53%, with actual EPS of 1.53 relative to the estimated EPS of $1.28. Historical EPS performance shows that in the past 12 quarters, the company has topped estimates 25 times (67%), matched twice (5%), and missed ten times (27%).
Revenue: Net sales in Q3 2022 were $2.009 billion compared to $1.462 billion a year ago. Analysts had predicted that the company could report revenue of $1.857 billion. Gross profit during the quarter increased 65% YoY to $394 million. Commercial Metals Company reported a core EBITDA of $323 million, representing YoY growth of 89%. The North American segment reported net sales of $1.614 billion relative to $1.257 billion a year ago, while The European segment saw a 96% YoY increase in sales to $386 million.
Stock Movement: CMC shares have lost 1.4% since the company released its last earnings release. Interestingly, following the earnings release, the company's shares have in the past been UP 24 times out of the past 45 quarters. So, the historical price reaction suggests a 55% probability of the share price going UP following the earnings release. According to the Stockearning algorithm, the predicted volatility on the first day is +/-3%, while the predicted volatility on the seventh day is +/-5%.
What analysts are saying: BMO analyst David Gagliano raised his price target on Commercial Metals Company from$40 to $45 and maintained a hold rating on the shares. In a research note, the analyst told investors that "resilient" profits and volumes drove the firm's better-than-expected second-quarter results. Despite the enhanced operational and regional demand concerns, Gagliano expects long-product metal spreads to continue being high in the near run, with downstream product profits increasing as better lagged contract prices keep flowing through results.
Exane BNP Paribas analyst Seth Rosenfeld upgraded the stock from Hold to Buy and set a price target of $45. Also, KeyBank analyst Philip Gibbs upgraded the stock from Hold to Buy with a price target. Gibbs cited strong pricing power, Ingra optionality, and M&A.
Recently Citi analyst Alexander Hacking raised the company’s price target from $34 to $38 and kept a Hold rating on the shares. The researcher revised his model to account for scrap and realized steel prices. According to Hacking in a research note, the change is mostly driven by improving structural metal spreads over the quarter. He maintains a Hold rating on the stock but admits that the stock's near-term prognosis looks fairly positive, with a consolidated industry, low import pressures, and a "generally good" forecast for non-residential development in the United States.
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