AK Steel (NYSE:AKS) manufactures flat-rolled carbon, electrical, and stainless steel for steel distributors, auto manufacturers, construction companies, appliance manufacturers, and electrical power generation companies. AK Steel specializes in the manufacture of both hot-rolled and cold-rolled premium quality steel. Also, AK Steel manufactures welded tube steel for the construction and automotive markets.
The distribution/service center market accounts for about 39% of total revenues. Automotive manufacturers account for about 36% of total revenues. Steel for the general manufacturing/construction markets account for the remaining 25% of total revenues. AK Steel's main competitors, in its most profitable markets, are United States Steel (NYSE:X), North American Stainless, Arcelor Mittal Steel (NYSE:MT), and Allegheny Technologies (NYSE:ATI).
AK Steel focuses its business on customers that need the highest quality steel as well as technical support and precisely timed deliveries to support just-in-time manufacturing operations. By catering to the specific needs of its customers, AK Steel has made a niche for itself in the highly competitive U.S. steel industry.
We believe that AK Steel has a very high debt load with $1.41 billion in debt compared to a market capitalization of only $384.3 million. Also, AK Steel has had a history of poor financial performance with negative earnings for the past 4 years. Analysts' estimates are for AK Steel to lose about $0.05 per share in 2013, continuing this negative trend. We see no catalyst, in the near future, that could significantly increase the value of AK Steel. In general, we have a negative view of the global steel industry due to slowing demand for steel in China. At this time, we would not buy or hold shares of AK Steel.
We believe that AK Steel is expensive for the following reasons:
- AK Steel has had negative free cash flow since 2006 and is expected to have negative free cash flow in 2013.
- AK Steel has a negative tangible book value of -$542 million.
- 19 analysts cover the stock but only 5 have a Buy/Strong Buy rating on the stock.
- S&P has a sell rating on the stock (2 out of 5 Stars) and a fair value estimate of $1.60 per share.
Disclaimer: Ulfberht Capital is not an investment advisor. This article is not a recommendation to buy or sell securities. Always consult your investment advisor before making any investment decision.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.