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Inside AK Steel’s Valuation: Analyzing 2018 Drivers

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Dec. 4 2020, Updated 10:53 a.m. ET

AK Steel’s valuation

AK Steel’s (AKS) EV-to-EBITDA (enterprise value to earnings before interest, tax, depreciation, and amortization) multiple—the preferred valuation metric for capital-intensive industries like steel—comes to 6.67x its 2018 consensus EBITDA and 6.12x its consensus 2019 EBITDA.

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Comparative analysis

U.S. Steel (X) has the lowest forward valuation multiple in our coverage of steel stocks. The stock is trading at 4.97x its 2018 consensus EBITDA and at 4.61x its 2019 expected EBITDA.

ArcelorMittal (MT), the world’s largest steelmaker, is trading at 5.53x its 2018 consensus EBITDA and 5.43x its consensus 2019 EBITDA. Nucor (NUE) has the highest forward EV-to-EBITDA multiple among the steel stocks that we’re covering in this series, though Steel Dynamics (STLD) has by now almost bridged the valuation gap with Nucor.

2018 drivers

Notably, these forward multiples are based on expected earnings. Analysts polled by Thomson Reuters expect AK Steel to post adjusted EBITDA of $440 million in 2017 and of $591 million in 2018.

But steel companies’ earnings are sensitive to steel prices. The outlook for US steel prices still looks mildly positive for 2018, given stable global prices and higher raw material prices.

That said, AK Steel looks fairly valued based on its current valuation multiples. Remember, AK Steel could also raise cash by selling shares next year to fund its Precision Partners acquisition. The acquisition is now funded by AK Steel’s revolving credit facility.

Meanwhile, US steel producers are banking on President Trump to revive their fortunes. You can read Market Realist’s US Steel Industry’s Outlook: Steel Producers’ Views to explore what different steel companies expect from the Trump administration.

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