The fracking boom is a powerful force that is brewing in the United States. But, it’s not just natural gas drillers who will profit from this—the more that America drills, the more steel that will be needed. In addition, manufacturing is on the rise again. This is all great news for companies like our Stock Pick of the Day:
Company Overview: Based in Houston, Texas, Friedman Industries (NYSE:FRD) is in the steel business. The company’s roots extend back to 1939, when Mendel Friedman opened a family steel business in El Dorado, Arkansas. Over the years, the company has developed two business segments, including a coil business segment which processes and distributes hot-rolled steel coils around the Gulf Coast, as well as a tubular business segment which manufactures, processes and distributes steel pipe. With only 100 employees, Friedman is a small company that packs a punch.
Industry Breakdown: The Steel & Iron Industry is huge—with 201 individual companies. Of those, this company’s market cap is on the smaller side—ranked at no. 159. However, Friedman does stand out in terms of dividend yield, which at 4.8% is third-best in the industry. The company’s sales growth is also ranked at 26th, its earnings growth is 39th and its return on equity is 40th. So, compared with the rest of the industry this is a fundamentally strong company. And, this also extends to Friedman direct competitors, which are Northwest Pipe (NASDAQ:NWPX) and Olympic Steel (NASDAQ:ZEUS). Of these three companies, Friedman has the highest operating margin and the second-highest gross margin.
Earnings Buzz: The company’s last earnings announcement was released in mid-February and the results were solid. Compared with Q3 2010, Friedman Industries’ third-quarter earnings climbed 4% to $1.80 million, or 26 cents per share. Over the same period, sales jumped 19% to $36.99 million. This company has been posting steady top- and bottom-line growth over the past several quarters as well as declaring hefty dividend payments. Be on the lookout for the company’s next earnings announcement, which is scheduled for May 10.
Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. This stock has stayed consistently in buy territory over the past 12 months, but has dipped from its A-rating in the summer and fall.
Currently, the company is doing quite well in terms of cash flow and has solid return on equity as well as sales and operating margin growth. However, four of its fundamentals—including earnings growth, momentum and surprises—need work. This stock receives a C for fundamentals and a B for buying pressure.
Bottom Line: Overall, Friedman is a B-rated buy.
Sound Off: What do you think about FRD? Are you a buyer at current prices? Let me know what you think by posting on our wall on Facebook.