Zacks.com releases the latest Zacks Industry Rank. Stocks featured in this week’s analysis include AK Steel (NYSE: AKS), FLIR Systems (Nasdaq: FLIR), Raytheon (NYSE: RTN), Steel Dynamics (Nasdaq: STLD) and U.S. Steel (NYSE: X). To see the Zacks Industry Rank and the trend in earnings estimates revisions for more than 200 industry groups, visit http://at.zacks.com/?id=3154.
Zacks Industry Rank Analysis is written by Charles Rotblut, CFA, Senior Market Analyst for Zacks.com.
Last week, three steel companies topped second-quarter expectations, the most notable of which may have been Steel Dynamics (Nasdaq: STLD).
In late May, STLD cautioned that inventory levels at steel service centers were resulting in “somewhat weaker than initially expected” pricing. Near the end of June, STLD suggested demand for flat-rolled steel could improve in the third quarter, thanks to reduced inventory levels at distribution centers. This prediction, along with third-quarter guidance for profits of $1.10 to $1.15 per share, helped to alleviate concerns about spot prices in the steel market.
STLD did miss second-quarter expectations by two cents, with adjusted profits of $1.02 per share. Six out of the 10 covering brokerage analysts raised their forecasts following the company’s report, based on the new guidance. These revisions resulted in the consensus estimate rising eight cents to $4.22 per share.
A day after STLD reported, AK Steel (NYSE: AKS) published its second-quarter results. The company earned 98 cents, 31 cents above expectations and 72 cents above year-ago levels. Revenues set a record of $1.87 billion as shipments increased and average per ton prices improved by 1% from the first quarter. The company was more cautious than Steel Dynamics about the third-quarter, predicting per-ton prices would fall by about 2% on a sequential quarterly basis. Nonetheless, the majority of the covering brokerage analysts raised their full-year forecasts, sending the consensus estimate 44 cents higher to $3.07 per share.
U.S. Steel (NYSE: X), which reported on the same day as AKS, also topped expectations. The company earned $2.66 on an adjusted basis versus the consensus estimate of $2.34 per share. A year prior, the company earned $3.10 per share. Revenues rose to $4.2 billion as shipments of flat-rolled steel improved and prices, particularly in Europe, increased. (Prices in the U.S. were up fractionally from first-quarter levels.) X does expect “slightly lower” prices in the third-quarter, but believes it can offset any weakness in pricing with higher shipments and a relative reduction in costs. About half of the covering brokerage analysts raised their guidance following the report, sending the full-year consensus estimate 61 cents higher to $10.25 per share.
Investors should note that while concerns about industry-wide inventory levels have been periodically popping up since the fourth-quarter, the price of steel has stayed at elevated levels. Sustained worldwide economic growth, industry consolidation and more interest by traders in commodities are all providing support to steel prices.
Steel Dynamics and AK Steel are both Zacks #1 Rank (“strong buy”) stocks. U.S. Steel is a Zacks #3 Rank (“hold”) stock, because only about half of the covering analysts have raised their forecasts. (Analyst agreement is one of the four factors that determine the Zacks Rank.) All three companies are classified in Steel-Producers, a group that contains six other Zacks #1 Rank stocks.
Moving on…
Two defense contractors added to the positive earnings momentum for the Aerospace sector last week.
FLIR Systems (Nasdaq: FLIR) earned 38 cents per share, two cents above the consensus estimate and 10 cents above year-ago levels. Revenues rose 33% thanks to a sharp increase in its Government Systems division. Demand for sensor systems is strong and the backlog for such systems rose by 13% last quarter. Based on the current trends and order volume, the company raised its full-year profit guidance to a range of $1.64 to $1.70 per share. (Previously, FLIR had forecast profits of $1.58 to $1.63 per share.) All of the covering brokerage analysts raised their projections in response, sending the consensus estimate seven cents higher to $1.69 per share.
Raytheon (NYSE: RTN) topped expectations by 19 cents with adjusted profits of 88 cents per share. Net sales rose 9% to $5.4 billion thanks in part to missile systems and missile defense systems. Higher demand for network centric mission solutions, which include sensor and communication systems, also helped to drive revenues higher. Based on the quarterly performance and the trend in bookings, the company raised its full-year guidance. RTN now expects to earn between $3.05 and $3.20 per share versus its previous guidance for profits to total between $2.85 and $3 per share. The majority of the covering brokerage analysts raised their forecasts in response, sending the consensus estimate up 14 cents to $3.21 per share.
Both FLIR Systems and Raytheon are classified in Electronics-Military Systems, one of the best ranked groups.
The interactive Zacks Industry Rank List allows you to see all of the companies, and their Zacks Rank, within more than 200 industries. See the list at http://at.zacks.com/?id=3208.
About Zacks Industry Rank and the Zacks Rank
Zacks Industry Rank is calculated by averaging the Zacks Rank for all covered companies within a given industry. The Zacks Rank is assigned to approximately 4400 stocks and ranges from #1 (“Strong Buy”) to #5 (“Strong Sell”). Both the Zacks Industry Rank and the Zacks Rank are quantitative indicators designed to cover periods of 1-3 months.
Since 1988, the Zacks Rank has proven that "Earnings estimate revisions are the most powerful force impacting stock prices." Since inception in 1988, #1 Rank stocks have generated an average annual return of +32.2%. During the 2000-2002 bear market, Zacks #1 Rank stocks gained +43.8%, while the S&P 500 tumbled -37.6%. Also note that the Zacks Rank system has just as many Strong Sell recommendations (Rank #5) as Strong Buy recommendations (Rank #1). Since 1988, Zacks Rank #5 stocks have underperformed the S&P 500 by 129% annually (+5.3% vs. +12.1%). Thus, the Zacks Rank system allows investors to truly manage portfolio trading effectively.
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Contacts:
Charles Rotblut, CFA, 312-265-9352
pr@zacks.com
www.Zacks.com
