Government contract wins put Reliance (RS) in focus
Reliance (RS) drew investor attention after subsidiary AMI Metals secured two sizeable U.S. government contracts, one tied to border wall steel and logistics and another supporting Lockheed Martin’s F-35 aluminum plate processing.
See our latest analysis for Reliance.
Despite the AMI Metals contract wins and recent broker commentary, Reliance’s share price has pulled back with a 17.5% 1 month share price return. However, the 1 year total shareholder return of 7% and 5 year total shareholder return of 117% point to a stronger longer term picture.
If this government contract news has you thinking about where else capital might find long term projects, it could be worth scanning 23 power grid technology and infrastructure stocks as another way to spot infrastructure linked opportunities.
With RS still close to its recent pullback level at $297.44, yet sitting on a 3 year total return near 30% and a 5 year return above 100%, you have to ask: is there genuine value left here, or has the market already priced in the next leg of growth?
Most Popular Narrative: 8.4% Undervalued
Reliance’s most followed narrative pegs fair value at $324.63, which sits above the last close at $297.44 and frames the recent pullback in a different light.
Heightened data center construction, electrification projects, and publicly funded infrastructure spending (schools, hospitals, airports) are driving robust demand for Reliance's specialty steels and engineered materials, resulting in market share gains and recurring volume growth. This is poised to benefit both revenue and operating leverage.
Curious what has to happen in revenue, margins and future earnings per share for that value to hold up? The narrative leans on moderate growth, higher profitability and a lower future earnings multiple, all brought back to today using a specific discount rate. The full story connects those moving parts into one fair value line.
This narrative uses an 8.35% discount rate, steady mid single digit revenue growth and a slimmer future P/E multiple to justify that $324.63 figure, so you can compare those assumptions with your own view before deciding how much weight to give the current price gap.
Result: Fair Value of $324.63 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, cost inflation and trade policy uncertainty could pressure margins and demand, which would make it much harder to sustain the current fair value story.
Find out about the key risks to this Reliance narrative.
Another View: DCF Paints A Tougher Picture
While the most popular narrative points to an 8.4% gap to fair value at $324.63, our DCF model lands in a very different place, with an estimate of $210.37. At the current $297.44 price, that implies Reliance is trading above this cash flow based view. Which story do you trust more?
Look into how the SWS DCF model arrives at its fair value.
Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Reliance for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 48 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.
Next Steps
Given the mixed signals in this story, it makes sense to look at the numbers yourself and not wait too long to form a view, especially with 3 key rewards and 1 important warning sign highlighting both the concerns and the upside that others are focused on.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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