AK Steel Upgraded On Expectations Of Higher Steel Prices

The U.S. Department of Commerce's recent ruling against China exporting steel to Vietnam as a stepping stone towards exportation to the U.S. to avoid duties would help support steel prices which bodes well for companies like AK Steel Holding Corporation AKS.

The Analyst

JPMorgan's Michael Gambardella upgraded AK Steel's stock from Neutral to Overweight with a price target raised from $6 to $7.

The Thesis

The Trump administration issued an affirmative preliminary ruling on China's tactics to circumvent high duties by redirecting their steel to Vietnam to be processed and then exported to the U.S., Gambardella said in a note. This ruling is especially encouraging for domestic steel producers as duties will be applied retroactively to all shipments that entered the U.S. as of November 4, 2016.

"The retroactive nature of the duties will make importers of record in the U.S. more reluctant to buy "cheap" imports in the future and should support higher steel prices in the U.S.," Gambardella said.

Given an outlook for higher steep prices, the analyst's 2018 earnings per share estimate was revised from 83 cents to $1.00 and its earnings should increase sequentially throughout 2018 from a base of a loss of 13 cents per share in the fourth quarter 2017 due to higher maintenance and input costs, lower shipments and lower prices.

Price Action

Shares of AK Steel were trading higher by nearly 5 percent Thursday, but are still down 50 percent since the start of 2017.

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