Commercial Metals Co. (CMC): A Hidden Gem in the Steel Sector Amid Mixed Earnings

Commercial Metals Co. (CMC) reported its fiscal third-quarter 2025 earnings with a mix of results: revenue surpassed expectations, while adjusted earnings missed Wall Street's targets. Yet beneath the surface, the company's robust cash flow, dividend discipline, and strategic investments point to a compelling undervaluation opportunity. For long-term investors, the short-term misses pale in comparison to the structural tailwinds in construction and infrastructure, positioning CMC as a buy at current levels.

### Revenue Beat Masks Underlying Strength
CMC's Q3 revenue of $2.02 billion narrowly beat estimates, reflecting sequential improvements in steel shipments and pricing. The North American Steel Group saw finished steel shipments rise 10.4% sequentially, driven by strong demand in construction and manufacturing. While adjusted EPS of $0.74 fell short of the $0.85 consensus, management highlighted margin expansion in the quarter's final months, with metal margins exceeding $499 per ton—up $23 per ton from the prior quarter. This improvement stemmed from a $45 per ton rise in selling prices, partially offset by higher scrap costs.

### Cash Flow and Dividends Reinforce Financial Health
CMC's liquidity remains a standout strength. With $893 million in cash and total available liquidity exceeding $1.7 billion, the company is well-positioned to navigate volatility. The dividend—$0.18 per share, marking the 243rd consecutive quarterly payout—reflects CMC's commitment to shareholders. In the quarter, the company also repurchased $50.4 million of its stock, underscoring confidence in its valuation.


The stock's recent pullback to $48.68—despite strong fundamentals—creates an entry point for investors. A trailing P/E of 81.70 may seem elevated, but it reflects expectations for growth in high-margin segments like the Emerging Businesses Group, which achieved a record 20.7% adjusted EBITDA margin in Q3.

### Strategic Initiatives: Building for Long-Term Growth
The Arizona 2 micro mill, a $1.1 billion project, is now operating at record production levels, reducing reliance on legacy facilities and cutting costs. Meanwhile, the Transform, Advance, Grow (TAG) program is exceeding targets, with annual savings expected to surpass $100 million. These initiatives align with CMC's focus on operational excellence, which management expects to drive profitability even as scrap prices and geopolitical risks loom.

In Europe, the Steel Group turned profitable for the first time in years, posting $3.6 million in adjusted EBITDA—up sharply from a $4.2 million loss a year earlier. This recovery, fueled by Poland's improving economy and cost discipline, suggests further upside as European demand stabilizes.

### Why the Short-Term Miss Isn't Fatal
The earnings miss reflects cyclical pressures, including rising scrap costs and a challenging comparison to last year's peak. However, management's guidance for sequential improvement in Q4—bolstered by a $28 million CO2 credit in Europe and seasonal demand—hints at a rebound. Analysts project a 70.9% annual EPS growth rate, with estimates rising steadily in recent months.

### The Case for Undervaluation
CMC operates in a sector critical to infrastructure spending, which is accelerating globally. The U.S. alone faces a $2.6 trillion infrastructure investment gap by 2025, per the American Society of Civil Engineers. CMC's position as a low-cost producer of rebar and steel scrap makes it a beneficiary of both public and private construction projects.

While risks like scrap price volatility and European import competition persist, CMC's diversified portfolio and cost-cutting programs mitigate these exposures. The stock's current valuation—trading at 14.5x consensus forward EPS—appears reasonable given its growth trajectory.

### Investment Recommendation
Commercial Metals Co. presents a compelling buy at $48.68. The company's strong cash flow, dividend consistency, and strategic investments in high-margin segments and cost-saving initiatives position it to outperform in the next cycle. Investors should view short-term misses as temporary, given the structural demand in construction and infrastructure. With a dividend yield of 0.7% and room for margin expansion, CMC is a rare blend of stability and growth potential in a volatile market.

Final Call: Buy CMC for long-term growth and income, with a price target of $60–$65 within 12–18 months.