AK Steel Holding Corp (AKS)

I found this pick on jester112358's CAPS list and it got me thinking about it as a complement to my PCU pick. So after doing some digging on Yahoo! Finance, I've decided to give this stock a marginal thumbs-up. Here's how I see it.

PROs: Forward P/E of 14.24; PEG is only 0.74 (nice!); Price/Sales is an extremely low 0.81; EV/EBITDA is a very nice 8.7 (I like anything under 10); they hold one-tenth of their market cap in cash, and their debt is only twice that cash hoard; insiders own 6.3%; Qtrly Earnings Growth (YoY) is 278% and Qtrly Revenue Growth (YoY) is 25%, both very good numbers.
CONs: Operating & Profit Margins are only 7% and 2.2%, respectively; Debt/Equity is higher than I'd like at 136.7%, but given that their cash-on-hand is already HALF that debt, I don't think this is D/E ratio is unmanageable (afterall, this is an extremely capital-intensive industry); I'd like to see the insiders own more stock (and they'lll wish they'd owned more by the time this year is over!); operating cash flow is in the $300M range which is OK, but really needs to be more to push those margins up (well, vice versa, really).

The key driver for this stock, I think, will be international demand, particularly from Canada and Mexico, the latter of which is growing faster. If management could see its way into the Chinese or Brazilian demand cycles, I think the stock would really take off, but I'm not so sure that's in the cards. Still, the company has been in business for 107 years and obviously has weathered many bad cycles. So, if the USA does plunge into a recession in early 2008 (or at least another correction, as I think we might), AKS will suffer as one of the suppliers to the US automotive industry (always the first to feel slowing demand based on consumer pocketbook worries), but it will continue to grow and probably come out stronger and better than its more richly-valued competitors after that pinch, given its steadily increasing growth over the last 4 years. This is not a stock to retire on, but I think it will do well over the long haul.

steel co has 2B underfunded pension and negative cash flow projected this year

Steel pick with good 30 day returns, decent rating and more room for upside

Beaten to bloody pulp. In a very short term = outperform (goldman analysts are bloody fools). $25 is reasonable, imho.
In a longer run, the company is a bit sensitive to a downturn, so no miracles there, NUE is a better stock, better company. That said, love this stock at this price level, even if it's up 20 % today, still a screaming buy.

Steel is oversold.

Spot market prices for steel as a commodity are good but AKS has a lot of headwind to their margins and cash position which does not justify premium to Nucor and industry average (definately not 14x 2008E):

40% auto exposure and 25% consumer/builder exposure with roughly 70% on year long contracts will lead to shrinking gross margin in a business with industry lagging margin to begin with (US based compliance costs with union workforce and one of the few mills with no recent bankruptcy.) Margin on spot market sales will be lower than normal because of drastically higher transport costs. Further margin erosion from 65% increases in iron ore prices across the industry from Vale and BHP. In addition, there will be soaring coking coal prices because of the floods in Bowen Basin and moratorium on China coking coal exports. Not to mention the company also buys a lot of carbon steel on the open market for some of their union "value-add" shops. Recent upgrade to EAF will increase electrical steel output and efficiency but the tonnage of shipments has been shrinking for 3 yrs

Expect the company to draw down its cash heavily over the next year. Recent settlement with retirees will suck at least $500 million of cash out the company this year (90% in 1Q08) with at least another $150 million needed in '08 for underfunded pension catch-ups. The pension will have large "corridor" charge in 4Q08 because of less than expected returns in pension accounts. >2x normal CapEx in the pipeline (at least $200 million) for 2008. During a "good" margin year, FCF was roughly $800 million.

Disclosure: I currently have no position in AKS.

AKS is weigh overpriced based on a 5X Price/Cash Flow ratio above industry average. More negative news on the pension under funding will bring this stock down from its spring high. With no P/E how can this stock go up from 14??? Too many call options have been sold @ $15 to see any further price movement to the upside.

I think this stock could go one of both ways. At this point i'm gonna say its gonna keep going up because even though the housing and auto markets are down there are still other markets for steel. Also, with the developing countries using more steel, if this company is somewhat global and not just US then there is more opportunity. And as a side note, Steel will always be in business even if it becomes a small business.

Well Managed

Decent earnings and a stock buyback announcement are two recent positives in what seems to be an myriad of bad news for this stock. In the next couple of years as the global demand for commodities starts to return this stock should recover.

Banking on the long plays.

Way too low.

Eventually we will have to rebuild the infrastructure and the world economy will grow. If the economy doesn't improve. the world will end up going to war and then we will need steel.

Lean, efficient company will power through the crisis and come out on top.

Buyout target

Lots of material going into and out of their plant in Middletown, OH when I went by there last week.

leading recycler.

steel is still the hot commodity

A small producer with a strong fiuture.