Steel Stocks to Watch for Earnings on Jan 24: STLD, AKS, ATI
So far the fourth quarter is showing promise with both earnings and revenue growth set to attain the highest level in eight quarters. Of the 63 S&P 500 members (or 19.2% of the index's total market capitalization) that have reported, earnings has gone up 4.7%, driven by a 2.7% rise in revenues. However, it is to be seen whether the momentum is maintained as the rest of the companies gear up to report their numbers.
The steel industry has gained 42.3% since the beginning of the fourth quarter. The steel industry continues to benefit from the sustained demand in the automobile and construction sectors. Further, steel market conditions in the U.S. have improved of late, on the back of favorable developments on steel trade cases in the recent past. However, the economic slowdown in China, and the continued weakness in the manufacturing sector will remain headwinds.
The steel industry falls under the broader Basic Materials sector which is among the 16 Zacks sectors. As per our projections, the sector is expected to register flat earnings growth in the fourth quarter due to 2.5% drop in sales. (Read more : Q4 Earnings Growth the Highest in 8 Quarters )
Let's take a peek at three steel companies that are gearing up to report their fourth-quarter 2016 results on Jan 24.
AK Steel Holding CorporationAKS is a leading producer of flat-rolled carbon, stainless, electrical steel and tubular products.
AK Steel has beaten the Zacks Consensus Estimate in the trailing four quarters with an average beat of 170.80%. According to our model, a company needs the right combination of two key ingredients - a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) - to increase its odds of an earnings surprise. AK Steel's Zacks Rank #1 increases the predictive power of ESP, an Earnings ESP of +0.00% makes surprise prediction difficult. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .
The Zacks Consensus Estimate for the fourth quarter is 7 cents, a 77% year-over-year decline. Given that automotive companies account for a large chunk of its sales, AK Steel should benefit from the strength in the automotive market and higher shipments of carbon steel products to automakers in 2016.
Allegheny Technologies Inc.ATI , a diversified specialty materials producer beat the Zacks Consensus Estimate in two of the trailing four quarters, with an average negative earnings surprise of 21.67%.
The company's Zacks Rank #3 and Earnings ESP of -27.27% makes an earnings beat unlikely this quarter. You can see the complete list of today's Zacks #1 Rank stocks here .
The Zacks Consensus Estimate for the fourth quarter is at a loss of 11 cents, narrower than the prior-year quarter's loss of 56 cents.
Allegheny is facing pressure in terms of sluggish global economic recovery and overcapacity of competitive stainless steel. The uncertain global economic environment is expected to continue affecting demand for the company's products. Moreover, depressed oil prices have created an uncertain environment for its products in drilling applications in the oil and gas industry. (Read more: Allegheny Q4 Earnings: Stock to Disappoint Again? ).
Steel Dynamics, Inc.STLD manufactures and sells steel products; processes and sells recycled ferrous and nonferrous metals; and fabricates and sells steel joist and deck products in the U.S. and internationally.
In fourth-quarter 2016, Steel Dynamics expects steel shipments as well as average steel product pricing to be lower sequentially. The lower estimated earnings from the steel operations were due to weak flat roll's operations in the beginning of the quarter. The company expects adjusted earnings in the range of 40 cents to 44 cents. The Zacks Consensus Estimate for the fourth quarter is 43 cents, reflecting 374.6% year-over-year growth.
Steel Dynamics' Zacks Rank #2 increases the predictive power of ESP, however, an Earnings ESP of +0.00% makes surprise prediction difficult.
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