Insteel Generating Historically Strong Margins With Robust Underlying Demand

These are interesting times to be in the steel business, particularly with the market uncertainty unleashed by Russia’s invasion of Ukraine. Insteel Industries, Inc. (NYSE:IIIN) has different exposure than companies like Commercial Metals (CMC) or Nucor (NUE), as it is a steel products producer, taking wire rod and producing prestressed concrete strand and welded wire reinforcing products for the non-residential and infrastructure markets. Nevertheless, navigating the challenges of inadequate domestic supply, strong end-user demand, and rising input costs makes things pretty “interesting” for Insteel as well.

I was more cautious on Insteel at the time of my last article, as I was concerned how the market would react to what looked like some turbulence in the outlook for non-residential construction. The shares have held up better than I expected since, rising almost 10% as the company has done a good job securing better spreads and managing a challenging supply environment.

Given my expectation that non-residential construction will accelerate later this year and into 2023, and that infrastructure and institutional spending will start accelerating in 2023, I like the near-term outlook, but I am still concerned about the risk of peaking financial performance.

 

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Insteel Generating Historically Strong Margins With Robust Underlying Demand