Bank of America Thinks Reliance Steel Might Be Too Hot to Touch

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Reliance Steel & Aluminum (NYSE: RS  ) slipped 2% today after Bank of America downgraded the metal processing services specialist to Neutral from Buy.

So what: Along with the downgrade, Bank of America reiterated their price target on the stock of $75 per share, representing virtually no upside to Reliance's closing price on Tuesday. While the firm remains very high on Reliance's business model, gross margins, and countercyclical cash flows, Bank of America thinks the steadily climbing stock -- up about 50% over its 52-week lows -- is running out of room to run.

Now what: I'd expect the stock to remain pressured in the short term. "[W]e think consensus forecasts now factor in a lot of good news, fueled by mgmt detailing 'normalized' earnings potential calculated from recent acquisitions off a strong 2007 base year," wrote Bank of America. "This limits positive surprise potential, we think, albeit we like the cash generation story." So while Reliance's valuation might be a bit steep right now, it's certainly worth keeping an eye on for any pullbacks.

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