Did Steel Stocks Just Hit A Bottom? J.P. Morgan Says Buying Opportunity Might Be Now

In a report published Thursday, JP Morgan analyst Michael F. Gambardella said that the fundamentals for the domestic integrated steelmakers had recently bottomed. The analyst added that shirking imports, coupled with stable demand, could push steel prices higher through the end of the year. Analyst Michael Gambardella upgraded the rating on

from Neutral to Overweight, while establishing a price target of $5. AK Steel reported better-than-expected 2Q results, besides guiding to improved performances in the 3Q and 2H. The company is poised to benefit from "higher shipments, production, and carbon spot prices as well as lower raw material costs, while FCF should be aided by lower capex and pension contributions," Gambardella wrote. In the report JP Morgan noted, "While the macro environment remains negative (strong dollar, weak China and weak oil), lower imports should push steel prices, the company's earnings, and AK's stock price higher in the near term." The EPS estimates for 2015 and 2016 have been raised from ($1.34) to ($1.02) and from $0.30 to $0.72, respectively. In another report, JP Morgan upgraded the rating on

from Neutral to Overweight, while establishing a price target of $28. Gambardella commented, "We had expected X's results to bottom in 3Q but they now appeared to have bottomed in 2Q based on solid cost reduction efforts." HRC prices are expected to increase to the low $500 per ton range by the end of 2015, with the imports scenario improving and demand remaining stable. The company is expected to benefit from incremental cost improvements of $375 million achieved in 2H15 and reach the low end of their 2015 adjusted EBITDA guidance of $700-$900 million, provided "market conditions continue improving at the current pace," Gambardella added. The EPS estimates for 2015 and 2016 have been raised from ($1.76) to ($0.72) and from $1.48 to $1.72, respectively, to reflect cost cutting and improving domestic steel fundamentals.