AK Steel Holding Downgraded by Morgan Stanley to Equal-Weight, Price Target Cut to $3

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AK Steel Holding (AKS) received an investment-rating downgrade Monday from Morgan Stanley to equal-weight from overweight as the firm warned clients it doesn’t expect a positive outcome for the steel company from resets of auto sheet contracts.

Morgan Stanley also reduced its price target on AK Steel’s stock to $3 per share from $5. This moves the target further above the stock’s recent prices; the shares closed Friday at $2.80 and was off 0.4% to $2.79 in recent Monday pre-market trading.

In a note to clients, Morgan Stanley said it previously had expected higher auto annual price contract resets in 2019 based on higher spot pricing and AK Steel passing through higher costs.

However, noting some 25% of contract resets already were captured in Q4 guidance, which came in below the Street view, the firm said, “we think AKS likely wanted to preserve long-term market share and would have been reluctant to achieve a strong pricing outcome.”

Morgan Stanley added: “While we think AKS might still be able to recover some higher costs, our conviction is low since we have low visibility in any strategic decision making to preserve market share, and we’re moving to the sidelines and downgrading the stock” to equal-weight.

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