On Jan 7, we upgraded our recommendation on steel maker AK Steel Holding Corporation (AKS) to Outperform factoring in its upbeat guidance for fourth-quarter 2013.
Why the Upgrade?
AK Steel, last month, provided its guidance for the fourth quarter and expects to post profit in the quarter on the back of strong carbon sales. The company expects to post earnings, barring one-time items, of 2 cents to 6 cents per share in the quarter. It also envisions shipments to rise at a double-digit clip sequentially in the fourth quarter.
AK Steel posted narrower loss in third-quarter 2013 on Oct 22. Adjusted loss per share was lower than the Zacks Consensus Estimate.
Following the release of the third quarter results, the Zacks Consensus Estimate of a loss for 2013 has gone down 12.7% to 55 cents per share.
AK Steel, a Zacks Rank #2 (Buy) stock, is expected to benefit from strength in the automotive market and higher shipment of steel products to automakers. It is expected to continue to gain automotive market share, driven by continued healthy demand for its carbon and specialty steel products.
AK Steel is also investing to procure about half of its iron ore and coal requirements internally. It is making good progress with its first coal mine at AK Coal and is ramping up mining volumes. AK Steel is also making significant progress with its iron ore pellet project at Magnetation. Both these strategic investments are expected to improve the company’s cost structure and strengthen its position in the years ahead.
Moreover, AK Steel should benefit from the favorable pricing trend for key raw materials such as iron ore, coke and coal. Declining prices for these inputs should work in its favor.
Other Stocks to Consider
Other companies in the steel industry worth considering are ArcelorMittal (MT), Companhia Siderurgica Nacional (SID) and U. S. Steel Corporation (X). While ArcelorMittal and Companhia Siderurgica Nacional hold a Zacks Rank #1 (Strong Buy), U.S. Steel retains a Zacks Rank #2 (Buy).
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