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Analyst Blog

On Mar 18, we issued an updated research report on steel maker AK Steel Holding Corporation (AKS - Analyst Report). The company should benefit from strong momentum in the automotive market and lower steelmaking input costs in 2014.

AK Steel posted healthy fourth-quarter 2013 results on Jan 28. The company swung to a profit in the quarter on the back of a tax benefit. Adjusted earnings topped the Zacks Consensus Estimate. Sales rose on higher shipments and beat expectations.

AK Steel, a Zacks Rank #1 (Strong Buy) stock, is expected to benefit from strength in the automotive market and higher shipment of steel products to automakers. Automotive contribution to the company’s revenues was 51% in 2013, higher than 45% achieved a year ago.

AK Steel is expected to continue to gain automotive market share, driven by continued healthy demand for its carbon and specialty steel products. The company expects higher shipment of carbon and stainless steel products to the automotive market in 2014.
AK Steel is also investing to procure about half of its iron ore and coal requirements internally. It is making good progress with its first coal mine at AK Coal and is ramping up mining volumes. AK Steel is also making significant progress with its iron ore pellet project at Magnetation. Both these strategic investments are expected to improve the company’s cost structure and strengthen its position in the years ahead.

Moreover, AK Steel should benefit from favorable pricing trend for key raw materials. The company expects to gain from lower input costs, mainly coal and coke, in 2014. Declining prices for these inputs should work in its favor.

Key Picks from the Sector

Other companies in the steel and related industries with favorable Zacks Rank are NN Inc. (NNBR - Snapshot Report), Worthington Industries, Inc. (WOR - Snapshot Report) and Timken Co. (TKR - Snapshot Report). While NN retains a Zacks Rank #1 (Strong Buy), both Worthington Industries and Timken carry a Zacks Rank #2 (Buy).

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