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Can AK Steel Return to Growth in 2018?

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Sep. 6 2017, Updated 9:06 a.m. ET

Growth

As noted previously, AK Steel (AKS) is expected to post adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) of $515 million this fiscal year. To put this in context, the company posted adjusted EBITDA of $510 million in 2016. Analysts expect AK Steel’s 2017 EBITDA to be similar to what the company generated last year. Meanwhile, analysts look positive on AK Steel’s 2018 outlook.

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2018 estimates

According to the consensus estimates compiled by Thomson Reuters, analysts expect AK Steel to post adjusted EBITDA of $637 million next year, which is 23.6% higher as compared to its 2017 consensus EBITDA. Among other factors, analysts seem to factor in higher average steel selling prices in 2018 in arriving at AK Steel’s 2018 EBITDA estimates. Looking at the recent trend, US steel prices have been quite stable in August. So far, we haven’t seen any of the second half slowdowns that we saw in the last two years. Furthermore, US steel mills are pushing for price hikes. Companies like U.S. Steel (X), Nucor (NUE), and ArcelorMittal (MT) recently wrote a letter to President Trump regarding steel imports.

While it’s too early to say whether the letter will have any impact on the ongoing Section 232 imports probe, in our view, it could help build positive sentiment in US steel markets. US steel prices could continue to show strength in the near term, which bodes well for AK Steel and other steelmakers (XME). Meanwhile, the company also faces some challenges that we’ll discuss in the next article.

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