AK Steel Holding Corporation (NYSE:AKS) — AK Steel produces flat-rolled carbon, stainless and electrical steels for the automotive, construction, electrical power generation and other markets. On Dec. 1, Standard & Poor’s Capital IQ increased their target by $3 to $11 because of improving investor sentiment toward steel stocks and a generally stronger outlook for higher steel demand and more punitive tariffs on imports by the new presidential team.
Although S&P maintains its 2016 earnings per share estimate at 30 cents, they raised their 2017 EPS by 5 cents to 55 cents. They have generally increased their outlook for the industry with a forecast of higher steel prices and cost controls, which should drive earnings growth. And longer term, earnings should rise because of a decline in pension and healthcare costs, greater internal sourcing of materials and a better, more profitable, product mix.
A stronger balance sheet is noted by S&P, after two equity offerings in 2016 resulted in dilutive equity raises.
AKS is in a powerful bull market that began in November following a nine-month consolidation. A break-away gap at $6.14 – $6.67 marks the breakout, followed by a confirmation of the break by several continuation gaps leading to a high in December at $11.39.
Following the December high, the stock consolidated within a wedge with support at $9.80, which is at the confluence of the intermediate support line and the bottom of a continuation gap at $9.80. Low-volume selling, attributed by Benzinga Research to “Window Dressing,” accompanied the recent decline. Thus, AKS appears to be a good value at $10 for a trading objective of $11.50 and a proposed gain of 15%.
Traders should enter a stop-loss order at $9.25.
