Barclays Grows More Confident In US Steel, While AK Steel Estimates Soften

Analysts at Barclays turned "moderately more constructive" on United States Steel Corporation X while simultaneously turning less bullish on AK Steel Holding Corporation AKS on Thursday.

US Steel

Barclays' Matthew Korn maintains an Equal-Weight rating on US Steel with a price target boosted to $25 as the company's second-quarter earnings report served as a "nice and timely counter" to the "disastrous" first quarter report.

US Steel showed that a combination of improved pricing, a seasonal rebound in iron ore mining ops, along with improved operation performance in the Flat Rolled division can generate encouraging results, the analyst stated. The company's reiteration of its guidance in the face of lower steel prices is also "encouraging."

Despite the encouraging data points, US Steel remains a high-risk stock and perhaps not the best avenue to gain exposure to the steel market, Korn continued. This could change over time if management is able to establish expectations which it can then successfully execute on.

Nevertheless, a revised price target is justified based on better projected cost trends, including expectations for continued operational cost declines into next year.

AK Steel

Korn also maintains an Equal-Weight rating on AK Steel with a price target lowered from $8 to $7 amid the company's "soft" near-term margin guidance.

While AK Steel's strategic moves to focus on incremental-capital and high return projects such as Mansfield and Middletown, investors are simultaneously being asked to "be patient," the analyst stated. This is "difficult" for investors, especially since the company's core market of automotive is no longer at its peak.

"Momentum in steel prices could be the best potential near-term catalyst," Korn wrote. "Even with Section 232 now apparently a back-burner issue, keep in mind that domestic inventories remain low, important orders have been light, scrap costs look poised for a gain, and Chinese steel prices remain buoyant on demand and a coal/iron ore bounce."

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