Portfolio Manager Steve Lyons of Cooke & Bieler says though Reliance Steel & Aluminum Co (RS) may look commodity-like on the surface, it is different from its peers in the industry.
“They have organized their business to perform tasks others find difficult. Notably, Reliance services small customers, and small customers order in small batches — so small, in fact, the competitors can’t profitably service them,” Lyons says.
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Lyons says Reliance provides exceptionally quick turnarounds, and that small customers lean on Reliance for just-in-time inventories. He adds that this is an attractive value proposition no other player can or wants to fulfill.
“Reliance gets paid well for the service they provide. They generate consistent and industry-leading gross margins, which they are able to leverage into high-single-digit operating margins, which generates decent returns on equity over a full cycle. Cash flow is countercyclical, which helps support the business during the economic downturns,” Lyons says.
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