The nation’s largest manufacturer of steel wire reinforcing products for concrete construction applications Insteel Industries (NYSE: IIIN) stock has been a pandemic benefactor thanks to the housing boom. It will continue to be a post-pandemic benefactor as an infrastructure play. Welded wire reinforcement (WWR) is the steel mesh wireframes commonly seen in road, bridge, driveway and building construction sites before the concrete is poured. When it comes to infrastructure, this is literally as core as it gets. This is a little known under the radar company with a dominant position can be monitored for opportunistic pullback levels to gain exposure in a core U.S. infrastructure pure play.
Q1 Fiscal 2021 Earnings Release
On Jan. 21, 2021, Insteel released its fiscal first-quarter 2021 results for the quarter ending Jan. 2, 2021. The Company reported an earnings-per-share (EPS) profit of $0.42 compared to $0.03 for the prior year quarter. Revenues rose 22.6% year-over-year (YoY) to $119.6 million from $97.6 million in prior year. This was driven by the 21.6% increase in shipments and 1% increase in average selling prices. Gross margins widened by 1,020 basis points to 16.6% versus 6.4% prior year quarter driven by larger spreads between selling prices, raw material costs and higher shipment volumes. The Company paid out a special cash dividend on Dec. 18, 2020, for $1.50 per-share or $29 million in addition to its $0.03 per-share dividend, ending the quarter with $50.2 million in cash and no debt. Public construction spending was resilient up 4.3% in the first 11 months of 2020. Highway and street construction spending rose 4% YoY in the last three months of 2020. The rapid rise in raw materials including rod costs have been offset with price increases that have yet to deter demand.
Conference Call Takeaways
Insteel CEO, H. Woltz stated, “We are encouraged by the resilience of our markets during the first quarter which is seasonally the weakest period of the year. Momentum has remained strong through the first weeks of our second quarter driven by solid demand from customers and substantial price increase initiatives which are required to recover rapidly rising material costs.” He noted, “We are hopeful the new Administration and Congress are successful in negotiating an infrastructure initiative that would shore up confidence in these markets and address critical infrastructure deficiencies.”
Favorable ITC Rulings
On Jan. 8, 2021, the Company along with other U.S. producers received favorable rulings from the International Trade Commission (ITC) against eight countries including Argentina, Colombia, Egypt, Netherlands, Saudi Arabia, Taiwan, Turkey, and United Arab Emirates on illegally traded PC Strand imports. As a result, duties ranging from 24% to 194% will be implemented. Additionally, seven more countries will receive final rulings by fiscal Q3 2021. Determination in a separate case against Mexico regarding standard welded wire reinforcement trade cases are expected by the end of fiscal Q2 2021. This evens the playing field for Insteel moving forward, which should improve margins and market share for U.S. construction projects.
IIIN Opportunistic Pullback Levels
Using the rifle charts on the monthly and weekly time frames provide a broader view of the price action playing field for IIIN stock. The monthly rifle chart formed an initial spinning top doji candle peaking at the $38.96 Fibonacci (fib) level. The monthly uptrend has a rising 5-period moving average (MA) at $28.24 with the upper Bollinger Bands (BBs) at $34.13. The monthly stochastic made a stairstep mini pup full oscillation that has stalled and potentially peaked at the 80-band. The weekly rifle chart collapsed through the 5-period MA at $33.90 on a rug pull that also formed a market structure high (MSH) sell trigger below the $29.49. The weekly market structure low (MSL) triggered on the breakout through $25.74. The weekly stochastic has formed a bearish mini inverse pup as it falls through the 80-band setting up a potential channel tightening to the rising 15-period MA at $29.62. The resolution to the weekly make or break will either be a weekly pup breakout above the 5-period MA on a stochastic crossover up, or a mini inverse pup breakdown as the 5-period MA breaks down through the 15-period MA. Prudent investors can monitor for opportunistic pullback levels at the $24.49 weekly MSH trigger, $28.56 fib, $26.61 fib, $25.74 weekly MSL trigger, and the $23.06 fib. The upside trajectories range from the $40.30 fib to the $50.62 fib.
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