After Two Upgrades, Is AK Steel Ready to Break Free?


AK Steel (AKS) has been one of the worst-performing steel stocks this year based on a year-to-date price action. The stock has fallen 26% so far in 2018 based on its closing price on September 7. U.S. Steel Corporation (X) and ArcelorMittal (MT) have fallen 17.2% and 11%, respectively, over that period. Nucor (NUE) is trading flat, while Cleveland-Cliffs (CLF) has seen an upward price action of 48.4%.

After Two Upgrades, Is AK Steel Ready to Break Free?

Bears loving the stock

For no apparent reason, AK Steel hasn’t been embraced by bears. Its earnings have sagged this year, falling year-over-year in the second quarter. In comparison, its peers Nucor and Steel Dynamics posted record earnings in the quarter amid margin expansion. AK Steel’s high financial leverage ratios, which became worse after its debt-financed Precision Partners acquisition, has also provided fodder to the bears.

After a dismal YTD (year-to-date) performance, some Wall Street analysts have discovered value in AK Steel stock. Last week, Bank of America Merrill Lynch double-upgraded AK Steel from “underperform” to “buy” and raised its target price from $5 to $6. On August 27, Morgan Stanley upgraded AK Steel from “equal weight” to “overweight” and lowered its price target by $0.50 to $5.50.

Stock upgrades

AK Steel has had two upgrades in the last two weeks. So is the stock ready to break free from the freefall for the last two years? We’ll get a better idea after looking at AK Steel’s bullish and bearish drivers in the next part of this series.