We are reaffirming our Neutral recommendation on
AK Steel Holding Corporation
). While the company is poised to gain from healthy automotive
demand and its strategic raw material investments, we remain on
the sidelines factoring in the weak steel pricing environment and
a challenging operating backdrop in overseas markets.
The steel maker recorded narrower loss in second-quarter 2013,
reported on Jul 23. Loss per share was lower than the Zacks
Consensus Estimate. However, sales fell due to lower shipments to
carbon spot and electrical steel markets and missed the Zacks
AK Steel, a Zacks Rank #3 (Hold) stock, is expected to benefit
from strength in the automotive market and higher shipment of
steel products to automakers. It expects to continue to gain
automotive market share in 2013, driven by continued healthy
demand for its carbon and specialty steel products. Automotive
represented 50% of the company's revenues in first-half 2013 and
is trending higher than 45% achieved in 2012.
AK Steel is also investing to procure about half of its iron ore
and coal requirements internally. It is making good progress with
its coal mine plan and expects to begin mining activities in the
near future. It 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.
However, AK Steel is exposed to macroeconomic uncertainties,
stemming from the sovereign debt crisis in Europe. It is
contending with oversupply in the industry and pricing pressure.
Lower spot market prices for carbon steel products are hurting
In addition, a weak European economy and slowing growth in Asia
are impacting AK Steel's electrical steel business. Moreover,
maintenance outage costs associated with the Middletown Works
blast furnace will continue to weigh on the company's bottom line
in third-quarter 2013.
Other Stocks to Consider
Other steel producers with favorable Zacks Rank are
Nippon Steel & Sumitomo Metal Corporation
Kobe Steel Ltd.
). While both Nippon Steel and Ternium maintain a Zacks Rank #1
(Strong Buy), Kobe Steel holds a Zacks Rank #2 (Buy).
AK STEEL HLDG (AKS): Free Stock Analysis
KOBE STEEL-ADR (KBSTY): Get Free Report
NIPPON STEEL CP (NSSMY): Get Free Report
TERNIUM SA-ADR (TX): Free Stock Analysis
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