Is It Too Late To Reassess Commercial Metals (CMC) After Its Recent 60% One Year Rally

• If you are wondering whether Commercial Metals is still attractively priced after a strong run, this article walks through what the numbers currently say about its value.
• The stock recently closed at US$76.87, with returns of 11.1% over the last 30 days, 7.1% year to date, 60.6% over 1 year and 41.4% over 3 years. Over the last 7 days there has been a 0.8% decline that may have caught your eye.
• Recent news coverage has focused on Commercial Metals as an established name in steel and metal products, with ongoing attention on how it fits into US infrastructure and construction activity. That backdrop helps frame the recent share price moves as investors look at how its fundamentals line up with sector peers.
• Our valuation checks give Commercial Metals a 5 out of 6 score. We will break this down using several standard valuation approaches, and then finish by looking at a broader way to think about the company’s value beyond the headline numbers.

Find out why Commercial Metals's 60.6% return over the last year is lagging behind its peers.

Approach 1: Commercial Metals Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model takes estimates of a company’s future cash flows and discounts them back to today to arrive at an estimate of what the business might be worth per share.

For Commercial Metals, the model used here is a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is reported at about $271.2 million. Analysts provide explicit free cash flow estimates for several years, and Simply Wall St then extrapolates these further out, giving a projected free cash flow of about $1.1 billion in 2035, all kept in dollar terms.

When those projected cash flows are discounted back to today, the DCF model arrives at an estimated intrinsic value of about $119.24 per share. Compared to the recent share price of US$76.87, that implies the stock is around 35.5% below this DCF estimate, which suggests a valuation gap based on these cash flow assumptions.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Commercial Metals is undervalued by 35.5%. Track this in your watchlist or portfolio, or discover 868 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Commercial Metals.

Approach 2: Commercial Metals Price vs Earnings (P/E)

For a profitable company, the P/E ratio is a straightforward way to relate what you pay for each share to the earnings that support it. This makes it a useful cross check against the DCF work you saw above.

What counts as a “normal” P/E depends on what investors expect for future earnings and how much risk they see in the business. Higher expected growth or lower perceived risk can justify a higher P/E, while lower growth expectations or higher risk usually line up with a lower P/E.

Commercial Metals currently trades on a P/E of 19.48x. That sits below the Metals and Mining industry average of 27.40x and the broader peer group average of 50.62x. Simply Wall St also calculates a proprietary “Fair Ratio” of 22.38x, which is the P/E it would expect for Commercial Metals after considering factors like its earnings growth profile, profit margins, industry, market cap and company specific risks.

This Fair Ratio is more tailored than a simple comparison with peers or the industry because it adjusts for those fundamentals, rather than assuming all companies deserve the same multiple. With the current P/E of 19.48x sitting below the Fair Ratio of 22.38x, the multiple based view points to the shares being undervalued on earnings.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Commercial Metals Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, which help you link your view of Commercial Metals to clear numbers and a fair value estimate. A Narrative is simply your story about the company written into assumptions, things like what you think revenue, earnings and margins could look like, and what you see as a reasonable fair value per share. On Simply Wall St, within the Community page used by millions of investors, Narratives make this process straightforward by connecting three steps: the company story you believe, the financial forecast that story implies, and the fair value that drops out of those forecasts. You can then compare that Fair Value estimate to the current market price to help you decide whether you want to buy, hold or sell. Narratives are updated when new information such as earnings releases or news is added, so your view can stay current without you rebuilding models from scratch. For Commercial Metals, one investor might set a higher Fair Value with stronger margin expectations while another might choose a lower Fair Value with more cautious revenue assumptions.

Do you think there's more to the story for Commercial Metals? Head over to our Community to see what others are saying!

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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