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Why AK Steel Isn’t in Favor with Brokerages

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Dec. 4 2020, Updated 10:51 a.m. ET

Tariffs

For AK Steel (AKS), among the analysts surveyed by Reuters on March 8, two recommended a “buy,” ten recommended a “hold,” and three recommended a “sell.” The stock’s mean consensus target price of $2.92 represents a potential upside of 11.9% over its closing price on March 8.

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Brokerages are bearish

In contrast, AK Steel carried a consensus target price of $6.39 before President Trump announced the Section 232 tariffs last year. The tariffs were hailed by steel companies including AK Steel and Nucor (NUE). However, AK Steel couldn’t really benefit from higher steel prices last year. The company sealed its 2018 automotive supply contracts before the spike in US steel prices. Higher competition from peers has been another dampener for AK Steel in its core automotive end market. Although AK Steel has risen 16.0% this year, it’s still roughly 50% below the price levels since March 2018 when President Trump announced the tariffs.

Deleveraging

While some of AK Steel’s peers like Steel Dynamics (STLD) and Cleveland-Cliffs (CLF) announced share buyback plans last year, AK Steel’s main focus has been deleveraging. The company has one of the highest financial leverage ratios in the space. AK Steel’s leverage was worse after the debt-financed Precision Partners acquisition.

In 2019, AK Steel has changed its guidance methodology. The company won’t provide quarterly guidance. U.S. Steel (X) has stopped giving its annual guidance and shifted to quarterly guidance. Read AK Steel and U.S. Steel: A Tale of Two Guidance Methodologies to learn more.

Next, we’ll discuss how analysts rate U.S. Steel.

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