Commercial Metals Turn Bearish on Flat Q4 Outlook

Commercial Metals Turn Bearish on Flat Q4 Outlook

 
In spite of reporting fiscal 2016 third-quarter results that beat estimates, the shares of Commercial Metals Company (NYSE:CMC) continues to remain in a decline mode. On Monday, the share price continued its downhill ride to close at $15.71. Primarily, the decline in the y-o-y earnings and revenue has contributed to the fall in the share price. The share price faces the prospects of further downfall in the coming days due to the reasons given below.
The Irving, Texas-based company reported fiscal 2016 third-quarter revenue of $1.23 billion, down from $1.51 billion in the prior year’s third-quarter. The revenue, however, surpassed the analysts’ estimates of $1.15 billion.

During the quarter, the company’s revenue declined in all the segments, compared to the previous year. The Americas Recycling revenue decreased to $182.48 million, from $225.10 million in the third quarter of fiscal 2015. The Americas Mills revenue declined to $396.48 million, from $446.82 million in the past year. Similarly, Americas Fabrication revenue fell to $385.08 million, from $417.90 million in the last year. The International Mill revenue was $141.44 million, compared to $156.32 million in the year-ago period. Likewise, the International Marketing and Distribution revenue plunged to $319.60 million, from $518.24 million in the third-quarter of 2015.

The century old company recorded a decline in the third-quarter net earnings to $19.33 million or $0.17 per share, from $28.71 million or $0.25 per share in the third-quarter of fiscal 2015.

For the quarter ended May 2016, the earnings per share from continuing operations were $35.11 million or $0.30 per share, compared to $39.16 million or $0.34 per share in the similar period last year. The Wall Street’s earnings estimates were $0.25 per share for the third-quarter.
The cash and cash equivalents at the end of third-quarter declined to $483.86 million, from $485.32 million in the corresponding period of fiscal 2015.

The fortune 500 steel company did not provide any guidance for the fourth-quarter. However, Joe Alvarado, Chairman of the Board, President, and CEO, stated that the company’s fourth-quarter results will be similar to that of the third-quarter. Naturally, this means that the fourth-quarter results will also record a y-o-y decline. Thus, fundamentally, we can expect the stock to remain bearish.

The share price was unable to cross the 17.30 level for the past three months. The path on the downside has the least resistance. The RSI indicator reflects bearishness with a reading below 50. Thus, technically, we can expect the share price to decline further to the next support at 14.

Commercial Metal - Technical Analysis - 28th June 2016

So, picking a one touch put option would be a good choice for a binary options trader. Considering the negative sentiment prevailing in the market, a target price of $14 or higher can be selected, provided a one month time period is given for the contract’s expiry.


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