Balanced View on AK Steel - Analyst Blog

On Apr 3, we issued an updated research report on steel maker AK Steel Holding Corporation AKS. While the company should benefit from strong momentum in the automotive market in 2014, it is expected to face challenges in the first quarter.

AK Steel, a Zacks Rank #3 (Hold) stock, posted healthy fourth-quarter 2013 results on Jan 28. The company swung to profit in the quarter on the back of a tax benefit. Adjusted earnings topped the Zacks Consensus Estimate. Sales rose on higher shipments and beat expectations.

AK Steel is expected to benefit from strength in the automotive market and higher shipment of steel products to automakers. Automotive contribution to the company's revenues was 51% in 2013, higher than 45% achieved a year ago.

AK Steel is expected to continue to gain automotive market share, driven by continued healthy demand for its carbon and specialty steel products. The company expects higher shipment of carbon and stainless steel products to the automotive market in 2014.
 
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.

However, AK Steel recently provided downbeat guidance for first-quarter 2014. It is expected to incur a loss in the quarter mainly due to higher energy costs and an unplanned outage at its Ashland Works blast furnace. The cost of natural gas and electricity is expected to increase due to cold weather. Steel shipments are expected to fall sequentially in the quarter.

AK Steel remains exposed to macroeconomic uncertainties, stemming from lingering challenges in Europe. Oversupply in the steel industry and pricing pressure remain as overhangs.

Other Stocks to Consider

Other companies in the steel and related industries with favorable Zacks Rank include NN Inc. NNBR, Norsk Hydro ASA (NHYDY) and NSK Ltd. (NPSKY). While NN holds a Zacks Rank #1 (Strong Buy), both Norsk Hydro and NSK retain a Zacks Rank #2 (Buy).