We are maintaining our Neutral recommendation on
Titanium Metals Corporation
The company recorded a profit of 17 cents per share in the
second quarter of 2012, lagging the year-ago earnings of 18 cents
but meeting the Zacks Consensus Estimate. Revenues increased 3.6%
to $281.7 million, but missed the Zacks Consensus Estimate of $289
Titanium Metals sees continued growth in the commercial aerospace
sector over the long term as global fleet replacement extension in
developing regions such as Asia, the Middle East and South America
support future titanium demand. In order to meet the demand, the
company has initiated several capital projects to increase melt
capacity and improve efficiency at certain facilities in the U.S.
and abroad, which are expected to finish in two years.
Titanium expects production rates across the commercial aerospace
supply chain to remain strong in 2013 and accelerate over the next
several years. Projected aircraft deliveries over the long-term
horizon are also expected to remain strong as fuel efficiency and
expansion of the global fleet in developing areas, such as Asia,
the Middle East and South America, are expected to support future
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 position it well to take advantage of
opportunities for strengthening and expanding its presence in key
However, revisions and delays in the build-out schedules of certain
commercial aircraft, and its impact on production and inventory
levels, are negatively impacting demand and selling prices. The
company 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.
The cyclical nature of Titanium Metals' commercial aerospace
industry, which accounts for a major portion of the company's
business, creates uncertainty regarding its future profitability.
Titanium also faces stiff competition from
Allegheny Technologies Inc.
RTI International Metals, Inc.
). We currently maintain a Zacks #3 Rank, which translates into a
short-term (1 to 3 months) Hold rating.
ALLEGHENY TECH (ATI): Free Stock Analysis
RTI INTL METALS (RTI): Free Stock Analysis
TITANIUM METALS (TIE): Free Stock Analysis
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