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AK Steel: Why It Isn’t the End of the Road Yet

Mohit Oberoi, CFA - Author

Aug. 18 2020, Updated 6:26 a.m. ET

AK Steel

In the last part, we discussed some of AK Steel’s (AKS) bearish drivers. Pricing pressure in AK Steel’s core automotive market amid higher competition from companies like Nucor (NUE), lower ASP (average selling price) growth due to lower spot exposure, and a possible equity offering seem to be weighing on AK Steel stock. In this part, we’ll discuss some of AK Steel’s bullish drivers.

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AK Steel’s valuation

AK Steel’s forward valuation looks attractive based on some metrics. The stock has the lowest forward price-to-sales and PE ratios compared to companies like U.S. Steel Corporation (X), Steel Dynamics (STLD), and ArcelorMittal (MT). Read The US Steel Industry’s Valuation Conundrum amid Tariffs for a comparative analysis of AK Steel’s valuation.

Higher steel prices in the United States seem more permanent after President Trump’s tariffs. Although AK Steel’s ASP growth has disappointed markets so far, the ASP could rise in the second half of the year as more contracts roll over. The company’s 2019 ASP could also benefit from better follow through of higher steel prices in contract sales.

After steel and aluminum, the Trump Administration is investigating automotive imports’ national security implications. A revamped NAFTA could also see more cars being produced in the United States. Higher auto build rates in the United States should support AK Steel. As we noted in the previous part, the automotive industry is AK Steel’s biggest end market.

Looking at AK Steel’s valuation and risk-reward, its downside could be limited from these levels. The factors mentioned above and AK Steel’s shift to more value-added products could drive long-term value.

Next, we’ll see how analysts are rating U.S. Steel Corporation.


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