Olympic Steel: Zacks’ Bear of the Day Play

Analysts have slashed their estimates for this steel producer as recent results revealed increased margin pressures. Sliding estimates sent the stock back to Zacks Rank #5 (Strong Sell) last week.

Headquartered in Cleveland, Ohio, Olympic Steel (ZEUSSnapshot Report) is a U.S. metals service center focused on the direct sale and distribution of processed carbon, coated and stainless flat-rolled sheet, coil and plate steel and aluminum products. The company operates from 34 facilities in North America.

Disappointing Fourth Quarter Results

The company reported its Q3 results on November 6.  Adjusted net income for the quarter was $0.15 per share, substantially worse than the Zacks Consensus Estimate of $0.34 per share. The company has missed the consensus in all of the last four quarters, with an average negative quarterly surprise of 79%.

Per management, “our revenue and market share have grown substantially in 2014; however, we are not satisfied with our bottom line. Operating costs are inflated for the current market environment,” and “a multitude of initiatives are underway to lower operating costs and improve efficiencies.

According to the company, US steel prices peaked during the quarter, leading to a surge in imports, which are currently putting pressure on the prices.

Downward Revisions

After disappointing guidance, estimates for the company have moved downwards. Zacks Consensus Estimates for the current year and next year are now down to $0.73 per share and $1.47 per share respectively, from $1.09 per share and $1.73 per share, 30 days back.

Declining estimates sent the stock to a Zacks Rank #5 (Strong Sell) last week.  The company was earlier featured as the “Bear of the Day” on April 4 this year; the stock is down 36% since then,

Better Play?

Steel industry is currently facing some headwinds and is ranked 162 out of 265 (bottom 39%). Investors looking to play this industry could consider United States Steel Corp (X), which carries a Zacks Rank #1 (Strong Buy). This company recently beat the Zacks Consensus Estimate by 83% and has seen significant positive momentum in earnings estimates since then.

Bottom Line

The near term outlook for the stock remains negative due to pricing pressures and elevated costs. Per Zacks Industry Outlook, there are a number of reasons to be careful of this space in the short-to-mid term, including slowdown in China & Europe, excess capacity and rise in cheap imports.

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