Russel Metals 2

I am continuing my review this stock (TSX-RUS) today as I have received its annual report. This stock was on Mike Higgs’ list of dividend paying growth companies. This stock is also on the Dividend Achievers lists at www.dividendachievers.com. However, it is not on the TSX Dividend Aristocracy list at www.tmxmoney.com/en/individual.html (see indices).

This stock starting paying dividends only 9 years ago and only started to increase its dividends 6 years ago. It might lose its place on these lists as it has decreased its dividend in 2009. However, it really had no choice but to decrease the dividends because of a debt covenant it signed.

The first thing I looked at was Insider Trading. There was both Insider Buying and Insider Selling going on, but there is a net of Insider Selling. However, there is not much insider trading going on, but the CFO and CEO and other officers have increased their holdings, while the Directors have decreased theirs.

Because of the recent drop in dividends, the Yield of 6.1% is slightly lower than the 5 year average of 6.3%. The current P/E is in the 5 to 6 range, where the 5 year average is closer to 8, but the 5 year average low is around 6. Neither of these ratios point to a current good price. Also, the forward P/E looks closer to 12. The problem is that this company had very good earnings in 2008; it is expected to drop significantly in 2009 and recover somewhat in 2010.

There is a problem also in using the Graham Price also. This price is partly dependent on the earnings. The current price is probably below the Graham Price, but this price is changing rapidly because of the high earnings in 2008 and the expected very low earnings in 2009. If you look at the Price/Book Value, you get a much better current ratio of 1.05 compared to the 5 year average of 1.72 and a 10 year average of 1.24.

There are Buy ratings on this stock and Hold ratings on this stock. The consensus rating is probably a Hold, but a Hold very close to a buy. (See my site for information on analyst ratings.) Analysts generally seem to feel that 2009 will not be a good year for this stock and that now is not a good time to buy.

This company does metal distribution and processing North America. It operates in three segments of metals service centers, energy tubular products and steel distributors. Its web site is www.russelmetals.com. See my spreadsheet at www.spbrunner.com/stocks/rus.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets.