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Strategies & Market Trends : Guidance and Visibility -- Ignore unavailable to you. Want to Upgrade?

To: Jane4IceCream who wrote (208202)	8/11/2011 1:58:20 PM
From: Brasco One	Read Replies (2) \| Respond to of 208838

a little AKS too!! Steel Holding Corp Poised to Recover ?? Initiating Coverage with a Buy Rating We are initiating coverage of AK Steel (AKS) with a Buy rating and a $12 price target. Following a sharp sell-off, we believe AKS is best positioned within the group to lead the “bounce” when demand improves in 2012. We think AKS is structurally stronger than the market gives it credit for; front-end loaded pension and capex seem to have spooked the market on an FCF run-rate, but liquidity concerns seem overdone at this price level. We see large upside to shares that look very cheap. ?? Investment Merits Iron Ore and Met Coal prices are set to decrease, which benefits AKS more than any company in our coverage universe. The pension is moving towards being fully funded, offering upside to enterprise value, and recent other post-employment benefits (OPEB) reductions significantly reduce labor expense. Further, we expect new capacity to ramp up in lower value-add sheet markets before targeting AKS’s higher value-add markets, limiting market share loss. ?? Investment Risks UBS Iron Ore and Met Coal forecasts may not materialize and raw material-led margin pressure may persist. A weaker stock market could upend efforts to fund the pension and increase balance sheet liabilities. New sheet capacity is targeting AKS end markets and could progress more quickly than our forecasts. Despite improvements, a high fixed cost structure remains a burden in low-demand environments. The stainless market has been soft and new capacity is approaching. ?? Valuation: Initiating with $12 Price Target & Buy Rating We initiate coverage with our EV/EBITDA-derived price target of $12.