Commodities & Metals

Big Analyst Upside Called For in Steel and Metals for Commercial Metals Company

Commercial Metals Co. (NYSE: CMC) managed to close up 8% at $17.37 a share on Thursday after the company’s earnings were hurt by weather and rain but still managed to beat expectations. The shares were giving some back on Friday morning, but the analyst community sees stronger performance out of CMC in the coming year.

Investors who rely on charts more than fundamentals will want to pay close attention to CMC’s trading action in the coming days. Its shares challenged the late-January and early-February highs around $17.25 to $17.50, after bottoming out close to $15.25 in late December.

Credit Suisse had a very aggressive upside call here, with an Outperform rating and a target price raised to $27 from $26. The firm named CMC as a Top Pick in the steel sector, noting that its 2020 estimates appear to be way too low after the 35% or so decline from last year’s peak. The firm’s report said:

We now see Commercial Metals Company in position to materially exceed estimates going forward as metal spreads have materially rerated higher, Durant Micro mill is set to reach full capacity, and Gerdau accretion becomes much more apparent in coming quarters.

The Credit Suisse call implies a total return of about 60%, if its analysis proves to come true.

CFRA (S&P Global) reiterated its Buy rating and $22 price target after the earnings beat. Despite the problems with weather and orders, the firm believes that CMC will experience strong earnings growth in the upcoming quarters, along with a robust backlog of higher-margin mix. That call implied upside of 29%, before adding in the dividend.

Also, Macquarie raised to the shares to Outperform from Neutral at, but price target details were not available.

For some balance, and to show that not everyone is on board here: Merrill Lynch maintained its Underperform rating but it still raised its $16 price objective to $18 after the earnings beat. Even with that negative rating, the Merrill Lynch call still implies a total return forecast of about 8%, with the dividend and price target combined.

CMC shares were last seen trading down 2.7% at $16.88 on Friday, in a 52-week range of $15.23 to $24.95. The prior consensus target price was $20.20.

The stock also comes with a 3% dividend yield and has a short interest of 5.75 million shares (4.9% of its float).

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