We have reiterated our Neutral recommendation on
AK Steel Holding Corporation
). While the company is poised to gain from healthy automotive
demand and lower raw material costs, we remain cautious factoring
in its high cost structure, weak steel pricing environment and a
challenging operating backdrop in overseas markets.
The steel maker recorded narrower loss in first-quarter 2013,
reported on Apr 23, helped by lower raw material costs. Loss per
share was lower than the Zacks Consensus Estimate. However, sales
fell due to lower shipments to carbon spot market and missed the
Zacks Consensus Estimate.
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.
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.
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 acts in its favor.
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. We are also
concerned about its high cost structure. Hefty maintenance outage
costs associated with the Middletown Works blast furnace may
weigh on the company's bottom line in the second quarter.
Other Stocks to Consider
Other companies in the steel industry having favorable Zacks Rank
Angang Steel Company Ltd
LB Foster Co.
). All of them hold a Zacks Rank #2 (Buy).
AK STEEL HLDG (AKS): Free Stock Analysis
ANGANG STEEL LT (ANGGY): Get Free Report
FOSTER LB CO (FSTR): Free Stock Analysis
TERNIUM SA-ADR (TX): Free Stock Analysis
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