AK Steel Might Deliver Upside Earnings Surprise

Soleil's Bradford Research is out with some interesting comments on AK Steel (NYSE:AKS) saying the company has apparently been successful in reducing its costs such that it is now possible that they had operating earnings of more than $100 a ton in the second quarter. This could bring earnings to $0.78 a share, a material improvement compared to firm's previous forecast of $0.63 a share and the consensus estimate of $0.68.

AK Steel is benefiting from a strong specialty steel market: grain oriented silicon steel, but also 409 stainless steel, which does not contain nickel. This latter product has gained market share compared to the more common 300 series, which contains both nickel and chrome, with nickel prices so strong as to have pushed customers to the much-lower-cost 400 series.

The company's "Big 3" automobile industry customers have clearly been hurting, but AK is especially strong with Toyota (TM), which has been gaining share. They have been winning Toyota quality awards for a number of years.

Consolidation in the steel industry has not reached AK Steel yet despite numerous stories in the press. The firm suspects that the sharp rise in these shares has made the stock too expensive for the taste of most of the likely aggressors, yet U.S. Steel could still obtain major synergies from such a combination, in their view.

Notablecalls: While I much rather would like to highlight some negative calls on the steel group here, this one's interesting enough to be highlighted as a positive. For what it's worth, Bradford has a Sell rating on AKS. Wouldn't have guessed, eh?

AKS 1-yr chart: