We are retaining our Neutral recommendation on
Titanium Metals Corporation
). Its third-quarter 2012 adjusted earnings of 12 cents per share
missed the Zacks Consensus Estimate of 16 cents. Revenues edged
down roughly 2% year over year to $257.7 million on lower volume
and trailed the Zacks Consensus Estimate.
Moving ahead, the company sees continued strength in the
commercial aerospace sector. Global fleet replacement extension
in developing regions such as Asia, the Middle East and South
America should support future titanium demand. To meet the
demand, the company has also initiated several capital projects
to increase melt capacity and improve efficiency across certain
facilities in the U.S. and abroad.
In a major move, Titanium Metals recently penned a $2.9 billion
merger deal with metal fabrication company
Precision Castparts Corp.
). Under the deal, Precision Castparts has agreed to acquire all
of the company's outstanding shares for $16.50 per share in cash.
Titanium Metals' Board has approved the merger based on the
recommendation of a special committee.
Titanium Metals has been successful over the last several years
in establishing significant flexibility and cost advantages in
its entire manufacturing process. The company's financial
strength and operating flexibility places it well to take
advantage of opportunities for strengthening and expanding its
foothold in key markets.
Titanium Metals expects production rates across the commercial
aerospace supply chain to remain strong in 2013 and accelerate
over the next several years. The company believes that its
customer supply agreements will be instrumental in growing its
aerospace business in the future.
However, Titanium Metals is likely to face higher raw material
and energy costs from a shift in product mix toward higher
concentration of mill products, which carry a higher unit-cost
than melted products due to associated labor and overhead costs.
In addition, the cyclical nature of the commercial aerospace
industry, which accounts for a major portion of the company's
business, creates uncertainty regarding its future profitability.
Titanium Metals, which competes with
Allegheny Technologies Inc.
) among others, currently retains a Zacks #4 Rank, which
translates into a short-term (1 to 3 months) Sell rating.
ALLEGHENY TECH (ATI): Free Stock Analysis
PRECISION CASTP (PCP): Free Stock Analysis
TITANIUM METALS (TIE): Free Stock Analysis
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