US Infrastructure Spending Will Boost Specialty Steel Demand

Key Takeaways

• Growth in data center and infrastructure projects drives demand for Reliance's specialty products, strengthening market share and boosting recurring revenues.
  
• Strategic investments in processing, logistics, and acquisitions enhance customer retention and gross margins, while robust cash flow enables shareholder returns and earnings growth.
  
• Reliance faces margin pressures from cost inflation, volatile demand, trade policy uncertainty, and regulatory risks, threatening both short-term profitability and long-term financial flexibility.

Catalysts

Operates as a diversified metal solutions provider and metals service center company primarily in the United States and Canada.

• 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.
  
• Continued investment in value-added processing capabilities and next-day delivery logistics has improved Reliance's market positioning, leading to outperformance versus the industry, increased customer stickiness, and the potential for sustained gross margin expansion as utilization improves.
  
• Signs of reshoring activity and heightened domestic purchasing due to trade uncertainty are strengthening Reliance's U.S.-centric supply chain and reducing competitive imports, giving the company a structural advantage for stable earnings even in volatile markets.
  
• Increased M&A opportunities, with improved alignment on valuations and a healthy balance sheet, open the door for further bolt-on acquisitions-supporting revenue diversification and non-cyclical growth prospects over the next several years.
  
• Consistently high cash flow generation and ongoing share repurchases are reducing share count and supporting shareholder returns, which, together with strong organic growth, can drive higher earnings per share (EPS) even if top-line growth is moderate.

Reliance Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Reliance's revenue will grow by 3.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.4% today to 6.4% in 3 years time.
• Analysts expect earnings to reach $979.4 million (and earnings per share of $15.61) by about July 2028, up from $737.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 19.1x on those 2028 earnings, down from 21.4x today. This future PE is lower than the current PE for the US Metals and Mining industry at 21.7x.
• Analysts expect the number of shares outstanding to decline by 4.4% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.23%, as per the Simply Wall St company report.

Reliance Future Earnings Per Share Growth

Risks

• Persistent trade policy and tariff uncertainty is resulting in customer caution, demand pull-forward, and reluctance to accept price increases, which risks ongoing pricing volatility and gross profit margin compression-negatively affecting near-term and potentially long-term earnings.
  
• Reliance faces cost pressures from inflationary wage adjustments, variable warehousing, and delivery expenses, while at the same time, suppliers are pushing through outsized raw material price increases (e.g., Midwest aluminum premium), challenging the company's ability to consistently pass these costs to customers and potentially squeezing net margins.
  
• Several end markets-including consumer products, industrial machinery, and the semiconductor industry-are currently experiencing softer demand or ongoing inventory overhangs, posing structural risks to diversified revenue streams in the absence of a broader manufacturing recovery.
  
• Reliance continues to engage in significant capital expenditures for organic growth, value-added processing, and acquisitions amid ongoing macroeconomic and trade uncertainties; if demand or pricing weakens for an extended period, these investments could depress free cash flow and pressure returns, affecting long-term earnings and financial flexibility.
  
• Although the company's model emphasizes predominantly domestic metal sourcing, evolving global trade dynamics, decarbonization trends, and stricter environmental regulations could expose Reliance to higher compliance and input costs, along with the threat of structural downtrends in hydrocarbon and metal demand-potentially impacting both revenue and profitability in core business areas.

Valuation

• The analysts have a consensus price target of $336.667 for Reliance based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $15.4 billion, earnings will come to $979.4 million, and it would be trading on a PE ratio of 19.1x, assuming you use a discount rate of 7.2%.
  
• Given the current share price of $299.72, the analyst price target of $336.67 is 11.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.