Allegheny (ATI) Shares Up 23% YTD: What’s Driving the Stock?

Shares of Allegheny Technologies Incorporated ATI have popped around 23% so far this year. The company has also outperformed its industry’s growth of roughly 16% over the same time frame.

Allegheny, a Zacks Rank #3 (Hold) stock, has a market cap of roughly $3.7 billion. Average volume of shares traded in the last three months was around 1,478K.

Let’s take a look into the factors that are driving this specialty materials producer.

Driving Factors

Upbeat outlook and the company’s actions to improve its operations and cost structure have contributed to the run up in Allegheny’s shares.

Allegheny expects year-over-year growth in operating margin and revenues in its High Performance Materials & Components (HPMC) division in the second half of 2018 on the back of improved asset utilization and growth in aerospace market demand.

Moreover, Allegheny envisions strong end-market demand in the Flat-Rolled Products (FRP) unit to continue and benefit from current operational improvements. It also sees growth in differentiated products and benefits from the A&T Stainless joint venture (JV).

Allegheny also continues to improve its cost structure with its gross cost reduction initiative. The company continues to expect strong second-half cash generation with at least $150 million of free cash flow for 2018, which excludes contributions to the ATI Pension Plan.

Allegheny’s JV with Tsingshan Group Company will also offer cost competitive stainless sheet products made for the North American market through a unique combination of Allegheny’s innovative, low-cost Hot-Rolling and Processing Facility (HRPF) and Tsingshan’s unparalleled Indonesian refining, mining and castings assets, and the JV’s unique Direct Roll Anneal and Pickle facility in Midland, PA.

The JV supports Allegheny’s considerable investment in the U.S. manufacturing operations, especially its HRPF facility, which will provide value addition to the processing services for the JV’s finished products.

Earnings estimates for Allegheny have also moved up over the past two months. Over this period, the Zacks Consensus Estimate for 2018 has increased by around 3.8% to $1.64. The Zacks Consensus Estimate for 2019 has also moved up 3.3% over the same timeframe to $2.21.

The Zacks Consensus Estimate for earnings for 2018 reflects an expected year-over-year growth of 241.7%. For 2019, earnings are expected to rise 34.4% year over year.

Stocks to Consider

Stocks worth considering in the basic materials space include ArcelorMittal MT, BHP Billiton Limited BHP and Nucor Corporation NUE, each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

ArcelorMittal has an expected long-term earnings growth rate of 4.8%. The company’s shares are up roughly 22% in a year.

BHP Billiton has an expected long-term earnings growth rate of 5.3%. The company’s shares have gained around 22% in a year.

Nucor has an expected long-term earnings growth rate of 12%. The company’s shares have gained around 13% in a year.

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