First, the obvious -- there are too many Coach bags and bags of its ilk, and there isn't enough steel. Second, Coach couldn't pass on a price increase to save its life. Every price increase sticks for US Steel.
Third, on the Coach call where does Lew Frankfort -- who is great! -- want to expand? The U.S. Ouch! Worst market in the world. Saturated. No growth. Feeling poor.
Where does US Steel want to expand? Doesn't matter. The demand is so great it's really an issue of shipping, as CSX's (NYSE: CSX) (Cramer's Take) Michael Ward would tell you -- at least he told me last night on "Mad Money."
The market's choppy, consolidating (or perhaps worse) pattern continues. Further, the steel sector remains vulnerable to a U.S./global economic slowdown, but one company that may hold its own is AK Steel.
AK Steel Holding Corp. (NYSE: AKS) is the third largest U.S steelmaker, and features coated, cold rolled and hot rolled carbon steel used by the automotive, appliance and manufacturing markets, among other buyers.
Analysts expect AK Steel Holdings' 2008 revenue growth to slow to about 2%-5% in 2008 after a 16% rise in 2007. Analysts expect stainless steel raw material surcharges to end, but carbon steel should show some price improvement as companies rebuild inventories.
Longer-term, analysts likely AKS' sector position, overall product mix, debt reduction, and cost containment (particularly regarding legacy costs). The Reuters F2008/F2009 EPS consensus estimates for AKS are $4.01/$4.33.
The risks? AKS remains vulnerable to companies' willingness to rebuild steel inventories, particularly the auto sector, which accounts for more than 40% of revenue.
The First Call mean rating for AKS is: Hold. [9 firms.] Mean 2008 target: $49.00. [high: $57, low: $45.] Stock Analysis: AK Steel is a moderate-risk stock not suitable for low-risk investors. More-cautious investors may want to wait for a possible pull-back in AKS' shares to about $51, but keep in mind AKS's shares may not retreat to that level. Investors with an investment horizon longer than 2 years should be rewarded from AKS' shares. Sell / Stop Loss if you were to purchase shares in this company: $31.
Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.
TheStreet.com's Jim Cramer says U.S. Steel is a puzzle, and he ponders how to play it here.
U.S. Steel (NYSE: X) (Cramer's Take) presents the ultimate conundrum. It is hitting on all cylinders, courtesy of the incredible demand for steel domestically because of pipelines. And it is finally not suffering from dumped imports, because the dumpers are from countries growing so much faster than we are that they need all the steel they can get - China, for example, is struggling to build its own share instead of dumping.
John Surma, the CEO, has taken this once-great company right back to greatness with a rise from $9 to $127 in five years. That defies gravity. He has done that by cutting labor costs and growing the business, he has done it by emphasizing areas he can dominate and cutting ones he can t. And he has done it by taking advantage of the 30 bankruptcies in this sector, leaving him one of the few publicly traded companies left, including Nucor (NYSE: NUE) (Cramer's Take), which is a great company, AK Steel (NYSE: AKS) (Cramer's Take), which levitates all of the time on takeover talk and then DOESN'T come in, and Reliance (NYSE: RS) (Cramer's Take), which is another fave of mine.
AK Steel Holding Corp. (NYSE: AKS) swung to a fourth-quarter profit that far exceeded Wall Street's expectations. The company earned $106.7 million, or 95 cents a share, in the three months ending December 31, compared with a loss of $49.3 million, or 45 cents a share, a year ago, when it took a one-time employee retiree health care benefit charge of $133.2 million. Revenue rose 7 percent to $1.69 billion from $1.58 billion in the fourth quarter of 2006, during a nearly 13-month lockout at its Middletown Works mill. Analysts surveyed by Thomson Financial had expected a profit of 59 cents per share on revenue of $1.68 billion. Shares fell in early trading Tuesday (along with the DJIA), but had recovered to $37.67 by mid-day Tuesday.
Railroad operator CSX Corp. (NYSE: CSX) reported that its profit rose more than 5 percent in the fourth quarter as productivity increases and expanding business offset higher fuel costs. Net earnings were $365 million, or 86 cents per share, for the three months ending December 28, compared to a profit of $347 million, or 75 cents per share in the previous year. Analysts polled by Thomson Financial had expected earnings of 64 cents per share for the quarter, and $2.50 for the year. CSX earned $1.23 billion, or $2.99 a share, for the year, against $1.31 billion, or $2.82 a share, a year ago. Revenue rose to $2.58 billion from $2.4 billion a year ago. Annual revenue rose to $10.03 billion from $9.57 billion in 2006. Shares were up around 6 percent to $43.75 by mid-day Tuesday.
AK Steel (NYSE: AKS), a flat-rolled carbon, stainless and electrical steel producer, is recently up $1.40 to $50.04. AKS is expected to report EPS on 10/23. AKS call option volume of 18,037 contracts compares to put volume of 14,916 contracts. AKS October 50 straddle is priced at $2.85. AKS November option implied volatility of 63 is above its 26-week average of 52 according to Track Data, indicating traders positioning themselves for a larger share price movement.
Intuitive Surgical (NASDAQ: ISRG), develops, manufactures and markets robotic technologies designed to improve patient returns. ISRG is expected to report EPS after the close on 10/18. CIBC says, "We feel the current valuation is reflecting expectations for another blowout in 3Q." ISRG call option volume of 6,005 contracts compares to put volume of 6,620 contracts. ISRG October 250 straddle is priced at $31. ISRG November option implied volatility of 71 is above its 26-week average of 49 according to Track Data, suggesting traders are positioning themselves for large price risk.
Daily options update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
AK Steel Holding Corp. (NYSE: AKS), a flat-rolled carbon, stainless and electrical steel producer, is recently up $1.39 to $50.63. The DealReporter said several steel companies are interested in AKS according to sources. AKS is expected to report EPS on October 23. AKS call option volume of 15,243 contracts compares to put volume of 2,502 contracts. AKS October 50 straddle is priced at $3.75. AKS November option implied volatility of 60 is above its 26-week average of 51 according to Track Data, suggesting larger price risks.
Mechel Steel (NYSE: MTL), a Russian mining and metals company, is recently up $6.26 to $72.23 after reporting its operational results for nine months. MTL November option implied volatility of 55 is above its 26-week average of 43 according to Track Data, suggesting larger price risk.
Daily options Update is provided by Stock Specialist Paul Foster of theflyonthewall.com.
MOST NOTEWORTHY: Boston Scientific (BSX), Medtronic (MDT), St. Jude Medical (STJ), Bankrate (RATE) and AXA (AXA) were today's noteworthy initiations:
Thomas Wiesel initiated coverage of the Medical Devices Industry:
Boston Scientific (NYSE: BSX) was initiated with an Underweight rating, expecting shares to Underperform peers due to reductions in estimates, risks to the stent business and valuation.
Medtronic (NYSE: MDT) was initiated with an Overweight rating, saying attractively valued as they believe the growth in underlying markets may be more robust than the current sentiment suggests.
St. Jude Medical (NYSE: SJT) was initiated with an Overweight rating, saying shares offer exposure to attractive drivers, a management team with the best track record in the segment, and a potential acquisition candidate.
Stephens believes the recent weakness in Bankrate (NASDAQ: RATE) due to "turmoil" in the market has created an attractive entry point, starting shares with an Overweight rating.
Morgan Stanley assumed coverage of AXA (NYSE: AXA) with an Overweight rating, citing an attractive risk/reward and strong free cash flow...
OTHER INITIATIONS:
S1 Corp (NASDAQ: SONE) was initiated with a Market Perform rating at Avondale.
The Wall Street Journal (subscription required) reported that Microsoft Corporation (NASDAQ: MSFT) has launched a new, free Web-based email, called Windows Live Hotmail, available in 36 different languages.
The Wall Street Journal reported that House lawmakers will challenge a deal made by House Financial Services Chairman Barney Frank and the U.S. Treasury to overhaul the supervision of Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).
The New York Times reported, citing investigators, that Chevron Corporation (NYSE: CVX) is preparing to acknowledge that it should have known kickbacks were being paid to Saddam Hussein on oil the company bought in Iraq.
WEBSITES:
DigiTimes.com reported that Aruba Networks Inc (NASDAQ: ARUN) CEO Dominic Orr said that the company is expecting to nearly double its share in the global enterprise mobility solution market in 2008 from 10%-12% to around 20%.
MOST NOTEWORTHY: The more notable initiations today included THQ Inc (THQI), LaSalle Hotel Properties (LHO) and OfficeMax Inc (OMX):
William Blair started THQ Inc (NASDAQ: THQI) with an Outperform rating, as they are positive on shares based on earnings upside potential from the new video game cycle.
RBC initiated shares of LaSalle Hotel Properties (NYSE: LHO) with an Outperform rating and $52 target, as the firm expects growth to be driven by portfolio repositioning efforts and renovations.
OfficeMax Inc (NYSE: OMX) was initiated at Bear Stearns with a Peer Perform rating citing a balanced risk/reward.
OTHER INITIATIONS:
Lehman Brothers initiated both AK Steel Holding Corp (NYSE: AKS) and Steel Dynamics Inc (NASDAQ: STLD) with Equal Weight ratings.
Wachovia started Beazer Homes USA Inc (NYSE: BZH) with a Market Perform rating, saying the company has few discernible competitive advantages over other public homebuilders and lacks catalysts.
Cowen initiated Rackable Systems Inc (NASDAQ: RACK) with a Neutral rating.
Bear Stearns re-initiated Tiffany & Co (NYSE: TIF) with a Peer Perform rating.
Leerink Swann started Align Technology (NASDAQ: ALGN) with an Outperform rating, with a range of $21-$23, believing the company's Invisalign technology is well positioned for renewed growth.
Bernstein initiated Murphy Oil Corp (NYSE: MUR) with an Outperform rating.
Cascade Financial Corp (NASDAQ: CASB) was initiated with a Hold rating and $19 target at Sandler.
MOST NOTEWORTHY: HSBC Holdings Plc (HBC), Suncor Energy Inc (SU) and Apple Inc (AAPL) topped today's list of downgrades:
HSBC Holdings Plc (NYSE: HBC) was downgraded to Underweight from Neutral at JP Morgan, as the firm believes the loan loss from the U.S. mortgage business may be 20% worse than expected. They recommend investors to short HBC shares and use any rally to add short positions.
Suncor Energy Inc (NYSE: SU) was downgraded to Underperform from Market Perform at Freidman Billings, citing fair valuation, higher capital costs and downside potential from crude oil prices.
Apple Inc (NASDAQ: AAPL) was removed from Goldman Sachs' Conviction Buy List.
OTHER DOWNGRADES:
Roche Holdings (OTC: RHHBY) was downgraded to Neutral from Buy at UBS.
Pacer Int'l Inc (NASDAQ: PACR) was downgraded to Neutral from Outperform with a $33 target at Baird after the company's disappointing fourth-quarter report.
Baird downgraded Host Hotels & Resorts (NYSE: HST) to Neutral from Outperform on valuation.
Sina Corp (NASDAQ: SINA) was downgraded to Market Perform from Outperform at Piper Jaffray due to valuation after the company's solid quarter.
JP Morgan downgraded AK Steel Holding Corp (NYSE: AKS) to Neutral from Overweight as they believe an acquisition of the company is not likely imminent given recent insider selling.
Raymond James downgraded Time Warner Telecom Inc (NASDAQ: TWTC) to Outperform from Strong Buy.
Oppenheimer downgraded FMC Corp (NYSE: FMC) to Neutral from Buy.
AG Edwards downgraded Simon Property Group Inc (NYSE: SPG) to Hold from Buy on valuation.
MOST NOTEWORTHY: Sun Microsystems Inc (SUNW) and the Telecom Services Sector were the most notable stocks on today's list.
First Albany upgraded shares of Sun Microsystems (NASDAQ: SUNW) to Buy from Neutral with a $7 target and has increased confidence that Sun can deliver on its 10%-plus operating margin following KKR's appointment to the Board.
Morgan Stanley upgraded the Telecom Services sector to In Line from Cautious, citing a positive view on AT&T Inc (NYSE: T) and industry trends.
OTHER UPGRADES:
Goldman Sachs added Occidental Petroleum Corp (NYSE: OXY) to its America's Conviction Buy List and upgraded shares to Buy from Neutral, citing valuation.
Bear Stearns upgraded EMC Corp (NYSE: EMC) to Outperform from Peer Perform following its fourth-quarter report citing improved execution and a favorable demand environment.
Longbow upgraded AK Steel Holding Corp (NYSE: AKS) to Neutral from Sell.
Raymond James upgraded Brinker International Inc (NYSE: EAT) to Outperform from Neutral.
TheStreet.com's Jim Cramer says the different reactions to these earnings underscore the difference between two good quarters. 
AK Steel Holding Corp.
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