What happened

The shares of U.S. steel mill AK Steel Holding Corporation (NYSE:AKS) advanced 10.4% in September, according to data provided by S&P Global Market Intelligence. Despite that notable advance, the stock was still down 13% through the first nine months of 2018. There are, however, signs of progress taking shape.

So what

The steel downturn that started after the 2007-9 recession took a material toll on AK Steel. The company bled red ink each year between 2009 and 2016, when steel prices finally started to recover along with other commodities. The long downturn, however, left AK Steel with a debt-heavy balance sheet (partially due to one-time charges, though the ongoing losses didn't help any) and a lot of work to do before it could start to reap the full benefits of the upturn. Even in 2017 the steel mill was only marginally profitable

A man working in a steel mill

Image source: Getty Images.

AK Steel posted positive earnings in each of the first two quarters of 2018. However, long-term debt has fallen only modestly while interest expenses remain elevated. To its credit, the company has extended some maturities and lowered the costs of its revolving credit facility. However, management continues to spend a significant amount of money on plant upgrades (capital investments in 2018 are projected to be roughly twice what they were five years ago and slightly higher than in 2017), suggesting that leverage will remain a concern.   

Although major issues remain, analysts are starting to see a light at the end of the tunnel for AK Steel. That helps explain three analyst upgrades in a span of two weeks, starting in late August. As Motley Fool contributor Rich Smith recently detailed, the basic consensus appears to be that the worst is finally over for AK Steel and that it will start to see notably higher profits in the near future. Sustainably higher steel prices are expected to be the foundation of the company's improved results. Investors, happy to hear that news, pushed the stock price higher through most of September.

Now what

It remains to be seen if AK Steel will actually reap the benefits of higher steel prices, as a number of analysts have suggested. Even if it does, however, AK Steel remains a highly leveraged company with a lot of work to do on its balance sheet. At best, AK Steel is a turnaround story only appropriate for more aggressive investors.