On Mar 26, Zacks Investment Research upgraded Allegheny Technologies Inc. ATI to a Zacks Rank #3 (Hold) from a Zacks Rank #4 (Sell).
Why the Upgrade?
Allegheny's fourth-quarter 2014 earnings of 18 cents per share reversed the year-ago quarter loss of 79 cents per share. Adjusted earnings came in at 4 cents per share in the reported quarter.
Allegheny, a significant supplier to commercial aircraft engine manufacturers, is also expanding in the commercial airframes market. The company has a number of innovative products that are expected to account for a fourth of its sales to the aerospace market by 2017. Allegheny is seeing improving demand from aerospace OEMs, buoyed by production ramp-ups by Boeing and Airbus. Demand from the jet engine aftermarket is expected to improve on the back of higher airframe build rates. Moreover, the company has entered into long-term agreements with two leading jet engine makers that offer considerable growth opportunities on next generation and legacy jet engines over the next decade.
The acquisition of precision machining company Hanard Machine has strengthened Allegheny’s aerospace supply chain role and better placed it to attain the target of at least doubling the revenues of ATI Cast Products within the next 5 years. With this takeover, the company is now integrated in the manufacture of titanium investment castings from titanium sponge to precision machined finished parts.
Further, Allegheny has been increasing its zirconium production capacity under its High Performance Metals segment, anticipating strong growth in the nuclear electrical energy and chemical process industry markets. This would make Allegheny the world’s largest producer of critical reactor grade zirconium sponge for the nuclear energy market. In Feb 2014, the company acquired Dynamic Flowform Corp. (renamed ATI Flowform Products). The acquisition is expected to improve its foothold in aerospace and defense, oil & gas and chemical process industry markets.
Allegheny continues to improve its cost structure with its gross cost-reduction initiative. The company achieved roughly $140 million in aggregate gross cost-reduction across its operating segments during 2014, partly through reducing operating expenses and productivity improvements. It expects to realize cost reduction benefits in 2015 through increased production volumes.
However, Allegheny is facing an overcapacity of competitive stainless steel. A significant portion of the sales under the High Performance Metals segment are made to customers in the commercial aerospace industry. The commercial aerospace industry has historically been cyclical.
Allegheny continues to see certain challenges in its core Flat-Rolled Products segment. Weak demand and increased Asian imports are putting pressure on stainless steel sheet plate prices. Demand for flat-rolled products in industrial markets also remains somewhat weak.
Other Stocks to Consider
Better-ranked companies in the steel and related industries include Kobe Steel Ltd. KBSTY, ThyssenKrupp AG TYEKF and LB Foster Co. FSTR. While both Kobe Steel and ThyssenKrupp sport a Zacks Rank #1 (Strong Buy), LB Foster carries a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment