Deutsche Bank Upgrades Allegheny Tech, Nucor, Cuts AK Steel, Century Aluminum Ahead Of Q3 Results

• Metals shares have broadly plummeted, with several major stocks down more than 50 percent year-to-date.
• Deutsche Bank’s Jorge Beristain upgraded the ratings on Allegheny Technologies Incorporated ATI and Nucor Corporation NUE, while downgrading AK Steel Holding Corporation AKS and Century Aluminum Co CENX.
• Beristain mentioned that the preference should be for stocks that are not excessively reliant on price hikes and have exposure to growth markets.

Analyst Jorge Beristain said that steel and Aluminum prices continue to come under pressure on account of excessive global supply. Related stocks have declined, despite improvements in the US automotive, aerospace and construction markets.

US finished steel imports have risen by 7 percent y/y year-to-date, while aluminum have climbed 21 percent y/y. “In steel, we expect trade case penalties to be effected by late 2015/early 2016 and scrap prices to move lower,” Beristain mentioned.

The Deutsche Bank report added that while import pressure may ease by 2016, pricing could take longer to recover. “Our sector preference is for companies not excessively geared and with exposure to growth markets,” Beristain commented.

Allegheny Technologies

Beristain upgraded Allegheny Technologies from Hold to Buy, while reducing the price target from $27 to $20.

The Deutsche Bank report stated that the rating change was based on valuation, following the pushback in the company’s shares in 3Q15. The price target had been reduced to reflect lower revenue and earnings assumptions on account of lower stainless steel and nickel pricing.

Nucor

Beristain upgraded Nucor from Hold to Buy, while maintaining a price target of $52.

The analyst said that the revised rating was based on valuation upside, following the decline in the company’s shares in 3Q15. “Additionally lower anticipated scrap costs offset the impact of lower steel prices,” he wrote.

AK Steel

Beristain downgraded AK Steel from Buy to Hold, while reducing the price target from $6 to $3.

The company is reliant on hikes in spot steel prices over the next 12 to 18 months. The analyst cited uncertainty related to contract negotiations with automotive customers, which accounts for more than 50 percent of shipments, as another reason for the rating change.

Century Aluminum

Beristain downgraded Century Aluminum from Buy to Hold, while reducing the price target from $10 to $7. The analyst cited lower aluminum pricing and production cutbacks as concern areas.