Shares AK Steel Holding Corporation (AKS) hit a new 52-week high of $8.47 on Dec 30 and eventually closed at $8.18.
Year-to-date, AK Steel’s share price recorded a healthy return of 77.72%. The company’s long-term estimated earnings per share (EPS) growth rate is 5%. Average volume of shares traded over the last three months was approximately 6,429K.
What is Driving AK Steel Up?
AK Steel should benefit from the strong momentum in the automotive market. Automakers are witnessing higher production and sales, which is driving shipments of the company’s stainless steel products. The automotive market’s contribution to the company’s revenues is currently trending around 50%, which is higher than 45% achieved in 2012.
AK Steel expects to continue to gain market share in 2013. It has renewed contracts with automotive customers and secured higher contract pricing. The company estimates shipments to auto customers to exceed 16 million units in 2013.
The construction market also exhibited strength and AK Steel predicts total construction spending in 2013 to surpass $900 billion for the first time since the onset of the Great Recession. In addition to this, private construction has also rebounded by more than 40% since its low point in early 2009.
AK Steel is investing to secure around half of its iron ore pellet and coal requirements internally. The company is making good progress with its first coal mine (North Fork) at AK Coal and is ramping up mining volumes. The company projects the cost of coal at AK Coal to be 25% to 30% lower than market prices.
AK Steel is also making significant progress with its iron ore pellet project at Magnetation. Construction of the pellet plant (expected to provide 50% of iron ore pellet requirements) at Magnetation is currently underway. Both these strategic investments are likely to improve the company’s cost structure and strengthen its position in the years ahead.
Further, AK Steel should benefit from the trend of declining pricing for key raw materials such as iron ore, coke and coal. It expects raw material and energy costs this year to be $150 million lower than 2012.
AK Steel forecasts solid longer-term potential for global, high-efficiency electrical steels as the demand for energy in the world continues to grow. Energy is a key requirement for growth in developing countries where implementation of new efficiency standards is essential. AK Steel will continue to serve its international customers through global sales offices, technical support and product innovation.
Another steel company Allegheny Technologies Inc. (ATI) recently hit a new 52-week high of $35.89 on Dec 30 and eventually closed at $35.47. The shares of this specialty metals maker have been on the rise since it reported its third-quarter results on Oct 23.
Other Stocks to Consider
AK Steel currently carries a Zacks Rank #2 (Buy). Other players in the industry, which look attractive at current levels, are Companhia Siderurgica Nacional (SID) and U. S. Steel Corporation (X). While Companhia Siderurgica Nacional holds a Zacks Rank #1(Strong Buy), U.S. Steel has a Zacks Rank #2.
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