On Dec 9, we downgraded
) to Underperform following its sluggish third-quarter 2013
results. Our view is based on its persistent weakness in its
standard stainless products business, pricing pressure and a weak
Why the Downgrade?
The metal processor posted a loss in the third quarter on Oct 23
due to lower sales and weak pricing. Charges associated with sale
of businesses also weighed on its bottom line. Loss for the
quarter was narrower than the Zacks Consensus Estimate while
sales missed. Allegheny expects business conditions to remain
challenging through the end of 2013 and potentially in 2014 due
to U.S. debt ceiling and other fiscal policy issues.
Allegheny, a Zacks Rank #5 (Strong Sell) stock, is contending
with a soft economy and raw material cost pressures. Reduced raw
material surcharges and low base prices of standard stainless
products are hurting the results of its key Flat-Rolled Products
segment. Weak demand and increased Asian imports are contributing
to lower stainless steel sheet plate prices.
Demand for Allegheny's standard stainless products has been hit
by rapidly falling raw material surcharges, resulting in
customers delaying purchases. In addition, the same factors
appear to be influencing short-term demand for some high-value
products from some key end-markets as many customers are being
cautious and keeping inventories lean.
Moreover, lower pricing, surcharges and decline in mill product
shipments of nickel-based and specialty steel alloys and titanium
and titanium alloys hurt revenues in the company's High
Performance Metals segment in the third quarter.
Weak demand from jet engine aftermarket and nuclear energy is
expected to continue to affect Allegheny's results. Demand for
forging from construction and mining markets also remains soft.
Allegheny does not see any significant improvement in global
demand in the Flat-Rolled Products segment in the near term due
to the lack of mega projects. The business environment is
expected to remain challenging through the final quarter of 2013
given the uncertain economic environment.
Other Stocks to Consider
While we prefer to stay away from Allegheny, other companies in
the basic materials sector with a favorable Zacks Rank include
Companhia Siderurgica Nacional
United States Steel Corp.
Worthington Industries, Inc.
). While Companhia Siderurgica carries a Zacks Rank #1 (Strong
Buy), United States Steel and Worthington Industries have a
Zacks Rank #2 (Buy).
ALLEGHENY TECH (ATI): Free Stock Analysis
CIA SIDERUR-ADR (SID): Free Stock Analysis
WORTHINGTON IND (WOR): Free Stock Analysis
UTD STATES STL (X): Free Stock Analysis
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