AK Steel (AKS) Buy Rating Maintained at Goldman Sachs; Analyst See Attractive Entry

Goldman Sachs earlier maintained a Buy rating on AK Steel (NYSE: AKS) with a price target of $13.00. Analyst Sal Tharani said recent declines create a more attractive entry.

"We believe the recent sharp price decline in AKS offers a good opportunity to revisit this name as the market appears to be overlooking the fact that the price of its main cost component, namely iron ore, has declined by more than 40% this year. AKS’ iron ore cost lags by more than four months implying a significant cost benefit starting in 4Q," said Tharani.

"By our estimates, in 1Q15, AKS’ steel making cost would be down about $80/t versus last year just from the benefit of lower iron ore prices. Additionally, we expect US coking coal prices for 2015 to decline by at least $15/t, providing AKS an additional $10/t cost advantage. Lastly, we expect the company will start to see benefit from its purchase of Severstal’s Dearborn facility which, by our estimate, would be double digit accretive. Turning to the state of carbon flat rolled steel, we believe investors are pricing in a worst case scenario. HRC prices are declining, which we think should have been expected as the US price premium rose to an unsustainable level of over $200/t. Therefore, it should not be a surprise that domestic prices are moderating. We believe the premium would revert to a more sustainable level of $150/t, implying price bottoming at around $630/t compared to the current price of $650/t," he added.

For an analyst ratings summary and ratings history on AK Steel click here. For more ratings news on AK Steel click here.

Shares of AK Steel closed at $7.25 yesterday.

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