Bank of America Downgrades AK Steel Two Notches On Weak Guidance, Few Catalysts

AK Steel Holding Corporation AKS reported fourth-quarter results beofre the open Tuesday that showed a wider loss on a reported basis and a swing to a loss on an adjusted basis.

Sales were up 5 percent to $1.5 billion. The stock closed down 13 percent Tuesday. 

The Analyst

Bank of America Merrill Lynch analyst Timna Tanners downgraded shares of AK Steel by two notches, from Buy to Underperform, and lowered the price target from $8 to $5.50.

The Thesis

Disappointing first-quarter guidance and a lack of catalysts prompted the double downgrade, Tanners said in a Wednesday note. AK Steel's Q1 guidance of modestly higher prices and volume — and a 150-basis-point sequential EBITDA margin improvement — were disappointing, the analyst said.

AK Steel's commodity-neutral approach and limited spot tons trimmed any potential benefit the company can expect from higher steel prices, Tanners said. 

The analyst expressed caution regarding AK Steel's U.S. auto end market. Higher costs that impacted the second half of 2017 will continue to haunt the first quarter, Tanners said. Despite management's assurance of passing costs on to contracted tonnage, the analyst said she sees limited margin expansion.

BofA lowered its Q1 EPS estimate from 29 cents to a loss of 12 cents and for 2018 as a whole from $1.10 to 19 cents.

Price Action

AK Steel stock was last seen trading down 7.74 percent at $5.06, adding to a more than 13-percent slump Tuesday. 

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