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Steel Stocks to Watch for Earnings on Oct 25: AKS, ATI, SCHN

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A few steel companies are lined up to report their quarterly results this week - the busiest of this earnings season. The steel industry falls under the broader Basic Materials sector which is among seven of the 16 Zacks sectors that are expected to see negative earnings growth in the second quarter, per the latest Earnings Trends report.

Based on the earnings scorecard as of Oct 21, earnings for the sector participants in the S&P 500 index are up 3.3% from the same period last year on 1.8% lower revenues. Of the 20% of the companies reported in the Basic Material sector, earnings growth of 29.4% has been out on the scoreboard. However, it is too early to rejoice as the overall growth portrayal for the Basic Materials sector looks drab with the sector expected to see an earnings decline of 1.3% due to 3.1% lower sales.

Although the automobile and construction sectors persistently support demand, the steel industry is reeling from inadequate investment. Additionally, the continued weakness in the manufacturing sector and foreign steel import into the U.S. Steel market conditions in the U.S. have improved lately, driven by favorable rulings on steel trade cases in the recent past, providing some reprieve to U.S. steel makers.

Let’s take a peek at three steel companies that are gearing up to report their numbers on Oct 25.

AK Steel Holding Corporation , a leading producer of flat-rolled carbon, stainless, electrical steel and tubular products, will report third-quarter 2016 results.

AK STEEL HLDG Price and EPS Surprise

AK STEEL HLDG Price and EPS Surprise | AK STEEL HLDG Quote

AK Steel has beaten the Zacks Consensus Estimate in the trailing four quarters with an average beat of 200.42%. Though a Zacks Rank #2 (Buy) increases the predictive power of ESP, an Earnings ESP of +0.00% makes surprise prediction difficult.

The Zacks Consensus Estimate for the third quarter is 13 cents, a substantial 222.5% year over year growth. AK Steel should benefit from the strength in the automotive market and higher shipments of carbon steel products to automakers in 2016. Additionally, pricing trend for key raw materials is expected to support its results.

Allegheny Technologies Inc. (ATI - Free Report) , a diversified specialty materials producer will also report third-quarter results. The company beat the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive earnings surprise of 1.90%.

ALLEGHENY TECH Price and EPS Surprise

The company’s Zacks Rank #3 (Hold) and Earnings ESP of -18.18% makes an earnings beat unlikely this quarter.

Allegheny remains exposed to certain challenges in its core Flat Rolled Products segment. Selling prices and demand for the company’s standard stainless products are anticipated to remain under pressure. Further, lower oil prices are expected to hurt demand for Allegheny's products in the oil and gas market. (Read more: Allegheny Q3 Earnings: Disappointment in the Cards?)

Schnitzer Steel Industries, Inc. recycles ferrous and non-ferrous scrap metals; and manufactures finished steel products worldwide and will report the results for its fourth-quarter 2016.

The company has a robust earnings history, beating the Zacks Consensus Estimate in all the past four quarters. The company has an average positive earnings surprise of 64.12%.

SCHNITZER STEEL Price and EPS Surprise

The Zacks Consensus Estimate for fiscal fourth-quarter is 43 cents, a 38.71% year over year growth. In the fourth quarter, average ferrous selling prices are anticipated to be approximately 10% lower than last year's fourth-quarter and ferrous sales volumes are expected to be down by approximately 2%. The adverse impact of lower ferrous prices and volumes is projected to be neutralized by increased benefits from cost savings and productivity initiatives.

We expect Schnitzer Steel to come up with a positive earnings surprise this season backed by Earnings ESP of +16.28% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
 
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