On Aug 27, we reaffirmed our Underperform recommendation on
). Our view reflects sustained weakness in its standard stainless
products business, pricing pressure and a weak demand
The metal processor's profit for second-quarter 2013, reported on
Jul 24, tumbled year over year on lower demand across a host of
end markets and weak pricing. Both revenues and earnings for the
quarter missed Zacks Consensus Estimates. Allegheny saw lower
sales across its businesses in the quarter. The company is
focusing on cost optimization and is accelerating its cost
Estimates for Allegheny are on the downswing following the
release of the second quarter results. The Zacks Consensus
Estimate for 2013 has gone down 63.5% to 35 cents per share. The
Zacks Consensus Estimate for 2014 has also declined 27.6% to
Allegheny, a Zacks Rank #4 (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.
Weak demand from jet engine aftermarket and nuclear energy is
expected to continue to affect Allegheny's results. Uneven
domestic growth, slowing growth in China and weakness across
Europe and Japan is also impacting demand from the construction
and mining market.
Allegheny anticipates the business environment to remain
challenging through second-half 2013 given the uncertain economic
environment. Short lead time, softness across several end markets
and a decline in surcharges are expected to continue to affect
the results in the Flat-Rolled Products division in third-quarter
Other Stocks to Consider
While we prefer to stay away from Allegheny, other companies in
the basic materials sector with favorable Zacks Rank are
Nippon Steel & Sumitomo Metal Corporation
Kobe Steel Ltd.
). While Nippon Steel maintains a Zacks Rank #1 (Strong Buy),
Kobe Steel and Ternium each hold a Zacks Rank #2 (Buy).
ALLEGHENY TECH (ATI): Free Stock Analysis
KOBE STEEL-ADR (KBSTY): Get Free Report
NIPPON STEEL CP (NSSMY): Get Free Report
TERNIUM SA-ADR (TX): Free Stock Analysis
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