Two prominent steel producers set to report earnings at the end of the month are plunging this morning on downgrades from Credit Suisse. AK Steel Holding Corporation (NYSE:AKS) and United States Steel Corporation (NYSE:X) are down 8.6% and 6.2%, respectively, as of this writing.
The steel industry as a whole has done well so far this year, as the Market Vectors Steel (ETF) (NYSEARCA:SLX) has soared 8%, while AKS and X stock have sorely lagged in comparison. AK Steel stock has gained 2%, while United States Steel stock is sitting on 1.8% gains.
If you were hoping for gains of 380%-plus for AK Steel and U.S. Steel — like we saw in 2016 — Credit Suisse’s Curt Woodworth has some bad news.
Woodworth downgraded X, AKS and Steel Dynamics, Inc. (NASDAQ:STLD) to “neutral” from “outperform,” setting price targets of $30, $9.50 and $36, respectively.
The main reason for the downgrades are concerns of a sharp decline in bulk materials during the second half of the year, while Woodworth notes that any stimulus to infrastructure is “unlikely to materially benefit U.S. producers.” According to Woodworth, fundamentals for stateside steel producers have rested “almost entirely” on support from the supply side and Asian cost-push inflation:
“We are concerned the Trump boost to equity valuations is overdone, as our analysis suggests limited benefits from infrastructure spending growth and the fact that the heavy lifting on U.S. steel trade policy has been largely finalized following changes to injury laws and successful trade case outcomes in 1H-16.”
While all three steel stocks are being punished right now, the Street is a forgiving bunch when it comes to a beat-and-raise quarter. X reports earnings on Jan. 31 after the markets close, while both AKS and STLD release earnings on Jan. 24.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.