Now we have a uniformly speculative and even slightly conservative thought.: take steel company Commercial Metals (NYSE: cc), to get income by increasing the purchasing power of his products.
Growth potential and duration : 10,5 % during 14 months.
Why stocks can go up: industrial boom in the United States.
How do we act: we take at the moment 31,17 $.
Our reflections are based on the analysis of the company's business and the personal experience of our financiers, but remember: does not mean, that the investment idea will work like this, how are we waiting. Everything, what are we writing, - these are predictions and guesses, but not a call to action. To hope for our reflections or not - it's up to you.
And what about the author's predictions
Analysis, for example this and this, indicate that, that the accuracy of the prophecies of motivated prices is not great. And this is acceptable: there are always a lot of surprises on the stock exchange and clear forecasts are rarely realized. If the state of affairs was negotiable, then funds based on computer algorithms would perform better than people, but no matter how annoying it may sound, they work worse.
Therefore, we do not try to build difficult models.. The efficiency forecast in the article is the author's expectations. We indicate this forecast as a guideline: as with investment in general, readers decide for themselves, you should trust the creator and focus on the forecast or not.
We love, appreciate,
Investment editorial office
What the company makes money on
CMC is engaged in the creation and processing of steel products. According to the annual report, its proceeds are distributed by product type in the following way:
- Raw steel products - 13,29 %. Scrap metal from the organization's own landfills for future processing and use by other steel organizations.
- Steel products - 41,73 %. Iron roof, iron beams, reinforcing steel and mounting brackets. Products for industrial companies, agriculture and petrochemical industry.
- Recycled steel products - 37,65 %. Iron plates, iron coils, iron rods, skates, rolls of bar steel. Products for the construction industry for the construction of powerful buildings.
- Other - 7,33 %. Rental of company equipment for the construction industry and the creation of steel products specifically for a number of industries: heavy truck manufacturers, energy companies and military equipment.
Geographic distribution of the company's revenue:
- North America - 87,09%. Companies, who are in the USA. Adjusted EBITDA of the sector - 13,86 % from his proceeds.
- Europe - 12,91 %. CMC factories in Poland. Adjusted EBITDA of the sector - 8,86 % from his proceeds.
Distribution of revenue by country:
- USA - 83,3 %.
- Poland - ten percent.
- China -1.4 %.
- Germany - 1,2 %.
- Other states - 4,1 %.
Based on the only data available to us in 2019, the structure of the company's revenue by the final industries for the use of its products looks like this:
- Complex of infrastructure facilities - thirty-seven percent.
- Non-residential real estate - thirty-two percent.
- Residential real estate - sixteen percent.
- Equipment manufacturers and agricultural production - fifteen percent.
Arguments in favor of the company
American strong. In the idea for Emerson Electric, we mentioned, that in the United States, production indicators and plans of enterprises for investments in the renewal of fixed assets are growing, - from this should fall and CMC. Moreover, many steel enterprises in the United States deliberately do not start up previously shut down factories., to keep prices high for steel products. And amid an industrial boom and consumer activity, manufacturers have no other choice., except how to buy that, what is.
Well, if it comes to that, in the second most important market for the company, Poland, everything is fine too: production figures in this country are growing, which indicates an increase in orders for CMC in this country.
Price. Company P / E 11,56 and capitalization 3,76 billion dollars - a combination of these factors can lead to a rapid and tangible growth in quotations due to the influx of investors.
Purchase opportunity. The above advantages would be enough, to attract a buyer to CMC, but there is one more thing. In numerous presentations, the company says a lot about, how it actively invests in reorienting its manufacturing facilities towards high value added steel products, and indeed it is. Steel companies in the US do not have high final margins, so buying a compact and efficient CMC can be a great addition for any larger enterprise.
What can get in the way
What's next is unclear. Pandemic and rising crime triggered an exodus from major US cities, which led to a fall in the budgets of municipalities. Therefore, that less money will now be spent on investments in cities. This trend may negatively affect CMC orders in the medium term.. Or it may not affect: in the last quarter, sales increased in all segments. However, if you look at the segment in 9 months, ended 31 May, then in the segment “Recycled steel products” sales fell by 5,45% compared to the same period a year earlier. May be, this is a seasonal bug, but if not, it is better to be mentally prepared for negative reporting.
"You worked at a foundry, means, you're used to the heat ". American steel companies now have the ability to break such prices, because foreign industrial enterprises are also increasing their demand for steel, loading orders for steel companies outside the US. Non-US steel mills currently do not have as many dumping opportunities as due to the aforementioned demand at home, so and because, that not all factories are out of quarantine. But if the dumping of non-American steel workers resumes - and not too long ago it was a big problem in the US, - then the marginality of the CMC will suffer.
Wrecked. The company pays 0,48 $ dividends per share per year - with the current share price it turns out 1,53% annual. It's not that much money, so that this factor helps to pump up quotes at the expense of lovers of "divas", but problems are possible. The company spends intensively on upgrading its factories: plans to spend 200-225 million dollars this year, average annual requirements to maintain the current level of operations - $ 150 million. The company spends about 54 million per year, what about 16,36% from its profits over the past 12 months. Basically, the company should have enough money for everything: on 2,234 billion in arrears, 853,367 million of which need to be repaid within a year, the company has 443.12 million in accounts and 1,073 billion of counterparties' debts.
But, taking into account the extensive investment program of the company, there is a possibility of a reduction in payments - and from this the shares may fall.
What is the bottom line
We take shares now by 31,17 $. I think, that the positive points indicated in the idea will contribute to the growth of these shares to 34,5 $ during the next 14 months.