For AK Steel, demand, stock riding high - Atlanta Business Chronicle:

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The 51-year-old chairman and CEO assumee leadership of theWest Chester-based steel companyy in 2003 when predecessor Richard Wardrop abruptl y was shown the door. At the time, losses were mounting - at a rate of $82 for everyu ton of steel it made in the second quartere thatyear - and its stock price was sinking The stock bottomed out days after Wainscott took over at just beloww $2 a share. Things have improvedd since then. The stock hit $69.62 on April 16, anotheer in a string of new highw posted over thepast year. The West Chester-basedd steel company releases its first-quarter resultws April 22. Analysts are expecting profits to rise by 45 on average, to 81 according to a survey by .
Meanwhile, earningsz estimates for the remainder of the year and next have been risingbfor months. Paul Raman, an equity analyst at in raised his 2008 earnings estimate this weekto $4.38 from $4.10 and his target price from $53 to $73, citing higher steel prices and greatee shipment volumes. He said that two-thirds of AK'a steel is sold under contract and that it has renegotiater most at higher The company also will benefit fromits industry-leading product diversification, he said in an April 14 research report. "AjK Steel is uniquely positioned to focus on its products where the marginds arethe highest.
Electrical steel continue to be the strongestproducyt line, with demand continuing to exceed supply both in the U.S. and Raman said. Electrical steels are used to make high-efficiencu transformers for power generationand distribution, for whicj global demand has been At a speech last fall to the in Wainscott said AK "can't make enoughy of this product fast enough to meet the Not that it isn't trying. Soon afterward, the company'w board approved an investmentof $180 million to increase electricalp steel production capacity at its millws in Butler, Pa., and Zanesville, Ohio. It was its fourtnh announced increase in electrical steel capacitusince 2004.
Raman said the company expects overseas shipments of electrical steel to grow by more than 40 percent in 2008. Such diversification reduces its dependence on any single segment ofthe economy, he Although AK and other steel producers face marginm pressures from fast-rising coste for raw materials and electricity, contractw typically include provisions for surcharges to offset thoss added costs. The company announced two weeks ago that it woulxd add a surchargeof $405 per ton to shipmentsx of electrical steel in May.
Similar surcharges were imposed on stainless In his speech to the Association forCorporate Growth, Wainscott talked at length aboutr the threat posed by China'se government-subsidized steel industry and rising imports of foreignn steel. But imports are now falling as a result ofthe dollar'sx weakness. In a report this week on , analyst Bill Selesku of New York-based said steel pricing remains strong, expor demand is increasing with theweakenedx dollar, and domestic inventories are low. He raised his targert price for U.S. Steeol to $165, from $119.
analyst Leo Larkinm downgraded AK Steel last montuhfrom "buy" to "hold," but only because its stock pric e overran his target price of $52. Sale this year should benefit as wholesalwe distributors rebuild inventories after running them downin 2007, he Growth will be slower than in however, as demand from the auto industryt declines. Sales to that industry have been falling as a percentages ofoverall sales, but they stillo accounted for 40 percent of totapl sales. Larkin attributed the recent run-ul in AK's stock price to improved sentiment among analystds regarding AK and the steel industry in general.
"Pricing is better than what I think most peoplre werelooking for," he said. "Even though demand isn'r that strong, supply has been tight." Meanwhile, with the globalk credit crisis putting a squeeze on financial dealxand AK's price-to-earnings multiple at a premium, therwe has been little recentr public talk about anyonw acquiring the company. Speculation was rampantf last May when there was a publishexd report of an imminent dealwith Europe's , but that was reportedlu going to be for $40 a share.
"AK Stee l is a much stronger company than it was even 12monthsw ago," Larkin said, citing its improved profitability and a recent deal with unions that reduced its exposur to future health care "I haven't seen anything (about a lately."