AK Steel Well Poised on Auto Strength, Strategic Actions

Zacks

On Jan 4, we issued an updated research report on steel maker AK Steel AKS.

AK Steel outperformed the Zacks categorized Steel-Producers industry in the last three months, supported by better-than-expected earnings performance in the last reported quarter. The company's shares gained 141% during the period while the industry saw a gain of about 25.5%.

AK Steel’s earnings for third-quarter 2016 topped the Zacks Consensus Estimate. Sales fell year over year, but beat expectations. Better product mix, higher average selling price, improved carbon steel market prices, cost reduction measures and lower raw material costs led to a 31% year-over-year increase in adjusted EBITDA in the reported quarter.

AK Steel is well placed to gain from strength in the automotive market and higher shipment of steel products to automakers, supported by increased automotive builds. The company gets a large chunk of its sales from the automotive sector. Healthy demand for the company’s carbon and stainless steel products from its automotive customers is expected to continue moving ahead.

AK Steel is also laying importance on de-emphasizing commodity products and launching new products, such as its recently announced Nexmet line of next-generation advanced high strength steels.

The Nexmet family of products will provide high strength, greater ductility, and enhanced formability solutions for a variety of needs for structural and exterior automotive body lightweighting uses. These products are geared to help automotive original equipment manufacturers (OEMs) in meeting 2025 U.S. Corporate Average Fuel Economy (CAFE) targets.

Moreover, the acquisition of the Severstal Dearborn plant has provided AK Steel an access to highly modernized and upgraded steelmaking equipment and facilities. The company should gain from the synergies of the acquisition.

AK Steel also remains committed to provide competitive pricing in the current operating environment. Price increases in the spot market for various steel products have been observed of late. The company should also benefit from its cost-reduction actions.

AK Steel currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Other well-placed companies in the steel space include United States Steel Corporation X, Schnitzer Steel Industries, Inc. SCHN and Commercial Metals Company CMC, all holding a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

United States Steel has an expected long-term growth of 8%.

Schnitzer Steel has an expected earnings growth of around 81.6% for the current year.

Commercial Metals has an expected earnings growth of around 9.1% for the current year.

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