Can Anything Stop the Steel Stock Rally?

It wasn’t that long ago that steel stocks like US Steel (X) and AK Steel (AKS) had been left for dead. Now, they’re among the hottest in the market.

Reuters

Don’t believe me? Nucor (NUE), the underperformer of the bunch, has gained 12% during the past three months, more than four times the S&P 500′s 2.7% rise during the same period. AK Steel, meanwhile, has jumped 30%, Steel Dynamics (STLD) has climbed 37% and US Steel is up a whipping 81% during the past three months.

And it’s not like there hasn’t been plenty of good news to go around. On Tuesday, for instance, US Steel announced big changes that would hopefully save the steel giant a ton of money, including having its Canadian subsidiary file for bankruptcy. Then on Wednesday morning, Nucor said that it would earn far more during the third quarter than analysts had been predicting. And last night, Steel Dynamics also forecast earnings that were well above the Street consensus.

Cowen’s Anthony Rizzuto and team are excited by Outperform-rated Steel Dynamics’ results:

Steel Dynamics announced 3Q14 guidance of $0.42-$0.46, excluding $34MM in charges related to the acquisition and financing of Severstal Columbus, LLC. Steel Dynamics’ guidance was in line with our $0.44 estimate and exceeded the $0.37 consensus estimate.

Profitability is expected to increase q/q as shipments and metal spreads are forecast to improve in spite of continued elevated import activity. Demand for steel consuming end markets remain strong with strength in automotive, manufacturing, energy, and construction markets continuing to improve.

Increased demand for the company’s structural steel and fabricated steel joist and decking products continue to support the positive trend seen in the non-residential construction market. 3Q14 profitability from the company’s fabrication operations is expected to increase due to improved volume and margin.

Still, Credit Suisse is not ready to embrace the steel-company revival, at least when it comes to AK Steel, which is not, they not, US Steel. Analyst Nathan Littlewood and team explain:

AK Steel and US Steel both have leverage to our constructive macro view, but where we see US Steel’s ‘self-help’ story as having more positive news to deliver, we see AK Steel’s self-help story (raw materials) as having less scope for upside surprise. The other obvious contrast is that one company is looking at shutting down [blast furnace] steelmaking capacity in North America, while the other is buying more of it.

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We reinstate coverage on AK Steel with a $9 TP and Underperform rating.

Shares of US Steel have gained 0.4% to $45.85 at 2:43 p.m. today, while Nucor has risen 0.3% to $58, Steel Dynamics has advanced 0.6% to $25 and AK Steel has dropped 4.9% to $9.76.