Algoma Shares Decline Due to Weak Earnings Guidance

Investing.com -- Shares of Algoma Steel Group Inc. (TSX: AGA) fell 6.6% on Friday morning, marking the company's largest daily drop since June 2023. The decline followed the steel producer's announcement of Ebitda guidance for the quarter ending December 31, which fell short of analyst expectations.

Algoma Steel's Ebitda guidance indicated losses ranging from CAD 55 million to CAD 65 million. This reflects a deeper downturn than the anticipated loss range of CAD 6 million to CAD 25 million. This guidance reflects the challenges the company is facing, including rising costs impacting the steel sector.

BMO Capital Markets analyst Katja Jancic commented on the results, noting the deeper losses, which she described as a weak quarter that was not surprising given the current cost pressures.

"Overall, despite the challenging steel market right now, our long-term thesis remains intact that the transition to EAF will result in higher profitability and multiple re-rating over the cycle."

Meanwhile, Stifel Canada analyst Ian Gillies termed the update “negative” but noted it does not fundamentally change his team's investment outlook for Algoma.

Gillies highlighted Algoma's strategic position for transitioning to electric arc furnace (EAF) by the 2025 calendar year and the potential for corporate mergers and acquisitions. However, he also acknowledged increased levels of uncertainty for the company due to the upcoming tariff threat and challenging conditions in the steel market.