KeyBanc on Carbon Steel Stocks: Downgrading Worthington Steel Industries (WOR); Update to RS/MUSA Pair Trade

This morning, KeyBanc downgraded Worthington Steel Industries (NYSE: WOR) from Buy to Hold, saying risk-reward is more in balance against slowing domestic macro momentum and a strong 4Q12 (May) beat.

Analyst, Mark Parr, Said, " More challenging macro dynamics include emergence of tougher automotive SAAR comps (50%+ of Steel sales) and slowing shipment comps in general for steel distributors per recent MSCI trends during calendar 2H12; slowing global heavy industrial demand (i.e., Caterpillar (NYSE: CAT), Deere (NYSE: DE), Komatsu (OTC: KOMTF), Timken (NYSE: TKR) outlooks), which may impact Engineered Cabs (10% and 15-20% of normalized sales and operating profit, respectively) growth momentum; and weaker top-line growth momentum at the Company's largest joint venture, Wave (60% of FY12 joint venture earnings). These potential headwinds may temper enhanced growth opportunities for the Company's Pressure Cylinder segment, which continues to see stronger demand for mobile CNG tanks."

Parr also takes note that his market neutral pair trade of long Reliance Steel (NYSE: RS)(PT $59) and short Metals USA Holdings (Nasdaq: MUSA) has become less compelling after normalization of valuations.

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