Stock to watch: Allegheny Technologies Incorporated (NYSE: ATI)

Allegheny Technologies Incorporated (NYSE: ATI) stock recorded a 12% drop in the past one-month trading session (as of March 11th, 2017; Source: Google finance) while 3-month trading session recorded an increase of 11.1%. ATI was upgraded by Seaport Global Securities to Buy from Neutral, price target was lowered to $22 from a previous price target of $24. Analysts are bullish on the stock price based on the company’s positive financial health which is a rebound from market estimates and also prior year numbers.

Allegheny Technologies revenue has declined at an average annualized rate of about -8.2% during the past five years. However, the company has recorded a 7.7% increase in latest quarterly results to $796 million compared to consensus analyst expectations of $800.11 million. Also, ATI net profit margin for the 12 months is at -20.01% as compared to peers net margin of -3.21%, and the sector’s average is 105.94%. In this context, ATI is in a good position compared to its peers and sector. ATI reported a loss per share of $0.04 for the quarter, beating the analyst consensus estimate by $0.08.

Also, the company has a strong balance sheet with $164.1 million of cash on the books, while current liabilities stand at $105.1 million. Looking ahead, analysts estimate earnings to grow in upcoming quarters with forecasted earnings of $0.11 on a per share basis for the current quarter.

For 2017, Allegheny Technologies comments that its High-Performance Materials & Components (HPMC) segment is very well-positioned for profitable growth, especially in the next-generation jet engine platforms. HPMC segment sales growth of approximately 10% are forecasted, and operating profit as a percentage of sales to improve to the low-teens. In 2017, Flat Rolled Products (FRP) segment is expected to achieve sequential sales growth through the first two-quarters of 2017. On the contrary, visibility in the second half of 2017 remains cautious, and market conditions remain challenging in certain key end markets. FRP segment is expected to reach a low-single digit operating profit level, as a percentage of sales. Also, $135 million cash contribution is expected to the U.S. qualified pension plan in 2017.

In the latest quarterly results, Allegheny Technologies expects 2017 capital expenditures to be approximate $125 million, including 2016 carryover and approximately $40 million for the expansion at our 60% owned Chinese joint venture, STAL. Beyond 2017, it continues to expect capital expenditures to average no more than $100 million annually for the next several years.

Based on above stated positive financials, analysts have a bullish recommendation on Allegheny Technologies.

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