AK Steel Holding Corporation (AKS) is scheduled to report the third quarter results on Tuesday, October 27, 2009. In the last two quarters, even though the company reported losses, actual earnings exceeded the market's consensus marginally. In the last two years, the company's Q3 earnings trended down over Q2 earnings. I see no reason why the pattern should break.
Analysts' estimates for the quarter ending September 2009 (Q3) range from a low of $-0.06 to a high of $0.05, with a consensus of $-0.001, which means the company continues to be loss making. For the fiscal quarter ending September 2009, the consensus EPS forecast has increased over the past week from -$0.005 to -$0.001 (80.00%) and increased over the past month from -$0.013 to -$0.001 (92.31%). Of the 12 analysts making quarterly forecasts, 3 raised and none lowered their forecast.
In Q2-2009, AK Steel experienced a lower level of customer orders and operating levels at its plants and the company experienced decreased shipments and lower average selling prices than in Q1-2009. Despite these substantial obstacles, AK Steel narrowed its operating and net losses quarter-over-quarter, due primarily to effective cost-reduction measures that it implemented company-wide. In Q3-2009, operating conditions were better than in Q2-2009, so I share the optimism expressed by those analysts who increased their earnings forecast for the company.
On the cost side, although the company is expected to have experienced significantly lower volumes and reduced operating rates compared to the same quarter in 2008, its results are expected to have benefited from lower raw material costs, compared to the previous quarter.
The company ended Q2-2009 with a solid cash balance of $386 million and had $668 million in availability under its revolving credit facility, for a total liquidity of more than $1 billion. Cash balance and liquidity should have improved in Q3-2009 due to firming up in product prices.
For the fiscal year ending December 2009, the consensus EPS forecast has increased over the past week from -$0.866 to -$0.862 (0.46%) and increased over the past month from -$0.878 to -$0.862 (1.82%). Of the 13 analysts making yearly forecasts, 5 raised and none lowered their forecast. World steel forecasts indicate that demand for steel in 2010 will return to 2008 levels after contracting in 2009 by 8.6%. So, the company's prospects seem to be better in the coming periods.
The company's stock closed Wednesday at $19.83, compared to the 52 week range of $5.2 and $24.27. I guess the stock is overvalued significantly.
