On Feb 29, 2016, we issued an updated research report on steel maker AK Steel AKS.
AK Steel’s adjusted earnings for the fourth quarter of 2015 outstripped the Zacks Consensus Estimate. But sales fell year over year on lower shipments and missed expectations.
Challenging steel market conditions and lower pricing continued to weigh on the company’s results in the fourth quarter. High levels of unfairly-traded imports resulted in a 6% decline in AK Steel’s average selling price in the quarter.
While AK Steel remains exposed to weak steel market fundamentals, it should benefit from strength in the automotive market and higher shipment of steel products to automakers, supported by increased automotive builds. AK Steel witnessed continued momentum in the automotive market in 2015. Automotive contribution to the company’s revenues was 60% for the year.
Automakers are witnessing higher production and sales, which are driving the shipments of AK Steel’s stainless steel products. Solid demand for the company’s carbon and stainless steel products from its automotive customers is expected to continue this year.
Moreover, the acquisition of the Severstal Dearborn plant has provided AK Steel an access to highly modernized and upgraded steelmaking equipment and facilities. With the acquisition, AK Steel expects its annual shipments to exceed 7.5 million tons. The company achieved costs synergies of around $59 million from the acquisition in 2015, exceeding its expectations.
AK Steel should also benefit from its strategic investments to procure about half of its iron ore and coal requirements internally. Moreover, the company is expected to gain from lower costs of key steelmaking raw materials.
AK Steel currently holds a Zacks Rank #2 (Buy).
Other Stocks to Consider
Other companies in the steel and metals space worth considering include Norsk Hydro ASA NHYDY, TimkenSteel Corporation TMST and Century Aluminum Co. CENX, all carrying a Zacks Rank #2.
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