Reliance Steel & Aluminum (RS, $75.10, up $1.62) is trading higher after boosting its 2Q guidance by 35% citing “larger and faster-than-expected increases in carbon steel product prices.” The company raised its earnings forecast to $2.00-$2.10 a share, way up from its previous forecast of $1.50-$1.60. Wall Street was expecting a profit of $1.64.
Here’s another stock that has Wall Street guessing. If you’ll notice, the Street was expecting Reliance to come in below expectations and over the past few weeks analysts have been downgrading the stock. One research firm recently lowered its rating on the stock from “Outperform” to “Sector Perform” with a $65 price target. Wrong. The stcok is at $75.
The company is scheduled to report earnings on 7/17 and is capitalizing on price increases while at the same time, expanding gross margins. Those two combinations will certainly help any company’s bottom line. Reliance has also been busy on the acquisition front. The company has agreed to buy PNA Group Holding, a steel service center group owned by Platinum Equity, for $1 billion.
The stock hit a high of $78.31 right out of the gate but as you can see the news is kinda wearing off. Before today’s news, Reliance had traded higher 6-out-of-the-last-7 sessions. The July 75 calls (4.40, up $1.24) traded as high as $5.80 when the market opened but have since faded as well. That’s the risk of buying options at the open and buying options with no limit price. The first 30 minutes of trading can be overblown and treacherous and option traders who bought at the high have lost 20% right off the bat.
The revised forecast was certainly good news for those of you who noticed Reliance’s uptrend before the announcement. The stock’s move from $66 to $76 has gone unnoticed by many on Wall Street but today’s news has woke them up.
Rick Rouse
Rick@OptionsMentoring.com
