Steel company has positive fundamentals, technicals and options support.
According to the company's website, AK Steel (NYSE: AKS, Stock Forum) produces flat-rolled carbon, stainless, and electrical steel products. The firm also specializes in the production of carbon and stainless tubular steel products for automotive, appliance, construction, and manufacturing applications.
On April 22, AKS reported a first-quarter profit of $101.1 million, or 90 cents per share, with sales rising to $1.79 billion. The report blew past analyst expectations for a profit of 82 cents per share on $1.78 billion in revenue. The company also noted that its average selling price during the first quarter hit a record $1,135 per ton, a 5% year-over-year increase.
In an accompanying statement to the report, Chairman, president, and CEO James Wainscott stated that "AK Steel is off to an excellent start in 2008... We executed well during the first quarter." The company's board underscored its better-than-expected quarter by announcing a quarterly cash dividend of 5 cents per share.
With the fundamentals firing on all cylinders, shares of AKS have powered steadily higher during the past year. In fact, the shares are up more than 100% in the past 52 weeks. Furthermore, the equity has gained more than 52% on a year-to-date basis, compared to the S&P 500 Index's (SPX) loss of about 3%. Throughout this rally, AKS has garnered key support from its rising 10-day and 40-day moving averages, having not closed a session below these metrics since January 18. Currently, the equity is consolidating its recent gains along round-number support at the 70 level. With AKS's 10-day trendline quickly ascending into the region, the 70 area could provide a springboard for the shares to extend their technical strength.
In the options pits, AKS has quickly become a favorite among speculative investors. Currently, AKS earns a Schaeffer's put/call open interest ratio (SOIR) of 0.47, as calls more than double puts among near-term options. This ratio also ranks below 94% of all those taken during the past year, indicating that options traders have been more optimistic toward AKS just 6% of the time during the prior 52 weeks.
Checking in on the open interest configuration, it appears that most of this optimism is placed at the far out-of-the-money 80 strike. In the June series of options, more than 37,000 calls reside at the 80 strike, making it the site of peak call open interest for the series. By comparison, peak put open interest resides at the deep out-of-the-money 55 strike, totaling just 15,000 contracts.
However, there are still plenty of investors that have yet to buy into the stock's solid technical and fundamental performances. Despite a 3.6% drop in short interest during the most recent reporting period, nearly 7.5% of the stock's float remains sold short. This wealth of bearish bets could provide ample fuel for a short-covering rally, as investors begin to buy back their positions.
Checking in with Wall Street, we find that analysts have largely ignored AKS. According to Zacks, just 5 brokerage firms currently follow the stock, with 2 "buys," 2 "holds," and 1 "sell." Additional coverage from the analyst community, or upgrades from the current naysayers, could bring more sideline money to the table, helping to usher AKS steadily higher.
By Joseph Hargett
See More Articles by Joseph Hargett of SchaeffersResearch.com
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