Ak Steel downgraded to "underweight" - update

04/26/04 - J.P. Morgan Securities

NEW YORK, April 26 (New Ratings) – Analysts at JP Morgan downgrade Ak Steel (AKS) from "neutral" to "underweight," while raising their estimates for the company.

Shares of Ak Steel, an integrated steel producer, are currently trading at $5.65.

According to JP Morgan’s research note published this morning, the current downgrade in rating is based on Ak Steel’s high cost structure, legacy cost obligations and weak profitability position. The company is facing unfounded employee obligations of about $3.1 billion, the analysts mention.

Despite the rising steel prices, the company is expected to register a modest improvement in its 2Q profits, JP Morgan states. Ak Steel’s limited exposure to spot market prices and short position on raw materials is expected to restrict the company’s earnings growth during the quarter, the analysts add. The company’s stock currently trades at a significant premium to that of its peer group, the analysts point out. Ak Steel’s weak financial position and the long term uncertainty regarding its legacy liabilities warrant a lower valuation for the company’s share, the analysts add. The company is expected to enter into new labour agreements over the next few months, JP Morgan mentions.

The EPS estimate for 2004 has been reduced from-$1.40 to -$0.70, while the estimate for 2005 is -$0.65.

JP Morgan downgrades Ak Steel from "neutral" to "underweight."