RUSSEL METALS $22.09 (Toronto symbol RUS; TSINetwork Rating: Speculative) (905-819-7777; www.russelmetals.com; Shares outstanding: 67.0 million; Market cap: $1.5 billion; Dividend yield: 5.4%) is one of North America’s largest metal distributors. The company serves its roughly 30,000 customers through a network of 50 locations in Canada and 12 in the U.S.
In the three months ended June 30, 2011, Russel’s earnings per share rose sharply, to $0.43 from $0.14 a year earlier. Revenue rose 21.1%, to $705.4 million from $582.5 million.
Revenue rose at all three of Russel’s divisions: The steel distribution division’s revenue rose 19% due to higher sales volumes and steel prices. Metal services revenue rose 24%, also on higher sales volumes and prices. The energy tubular products division, which supplies pipes for oil and gas companies, saw its revenue rise 19% on higher drilling activity.
More dividend hikes are likely
Russel raised its quarterly dividend by 9.1% with the September 2011 payment, to $0.30 from $0.275. The stock now yields 5.4%. Further increases are likely. Russel holds cash of $223.9 million, or $3.34 share. Its $302.0 million of long-term debt is a reasonable 20.1% of its market cap.
Customers in the oil and gas drilling industry account for about 30% of Russel’s revenue. That, plus its exposure to fluctuating steel prices, adds risk.
However, the company’s long-term outlook remains positive, and it is well positioned to gain as the economy recovers. Meanwhile, Russel plans to keep selectively buying competing firms.
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