Merrill Lynch throws in the towel on AK Steel
Oct 26 2015, 11:49 ET | About: AK Steel Holding Corp (AKS) | By: Carl Surran, SA News Editor Contact this editor with comments or a news tip
AK Steel (AKS -9.9%) plunges ~10% after BofA/Merrill downgrades shares to Underperform from Neutral with a $1 price target, slashed from $4, saying this year's sharp drop in steel prices does not appear to be fully reflected in consensus steel mill estimates, which likely will lead to disappointing guidance from AKS and U.S. Steel (X -5.9%).Based on the firm's forecast for lower steel prices, BofA expects AKS to lose $0.65/share in 2016, down from a prior $0.30 EPS and below the consensus estimate of a $0.10 loss; the firm also is concerned over AKS's tight cash flow position amid steep net debt and 2016 estimated EBITDA of 7.5x.BofA also cites AKS's fragile but improved free cash flow story, as estimated 2015 project spending falls sharply; the firm says AKS benefits from lower iron ore prices yet still relies on somewhat rigid contracts with Cliffs Natural Resources (CLF -1.5%) for more than half of its needs.
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