On Oct 9, we upgraded our recommendation on metals processor
) to Neutral. While pricing pressure and sustained weakness in
standard stainless products business remain concerns, we are
encouraged by the company's cost management initiatives and
improving demand in the aerospace market.
Why the Upgrade?
Allegheny'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
Allegheny, a Zacks Rank #3 (Hold) stock, should benefit from
its new alloys and products, diversified global growth markets
and differentiated product mix. The company is in the process of
finishing several self-funded capital projects which would help
augment organic growth.
Allegheny's diversified footprint, focus on growth markets,
new product/technology development initiatives and sustained
focus on cost containment strongly place it for future growth.
The company should gain from healthy demand across aerospace,
oil, electrical energy and medical industries. It is seeing
improving demand from aerospace OEMs.
Moreover, Allegheny continues to improve its cost structure
with its gross cost reduction initiative. The company targets at
least $100 million in cost reductions in 2013 and achieved
roughly $79 million in cost savings during the first half.
However, Allegheny 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. Uneven domestic growth,
slowing growth in China and weakness across Europe and Japan is
also impacting demand from the construction and mining
Allegheny anticipates the business environment to remain
challenging through second-half 2013 given the uncertain economic
Other Stocks to Consider
Other companies in the basic materials sector with favorable
Zacks Rank are
Companhia Siderurgica Nacional
Shiloh Industries Inc.
Kobe Steel Ltd.
). While Companhia Siderurgica and Shiloh Industries maintain a
Zacks Rank #1 (Strong Buy), Kobe Steel holds a Zacks Rank #2
ALLEGHENY TECH (ATI): Free Stock Analysis
KOBE STEEL-ADR (KBSTY): Get Free Report
SHILOH INDS INC (SHLO): Get Free Report
CIA SIDERUR-ADR (SID): Free Stock Analysis
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