Recent Posts

Specialty Materials: Highlights From Quarterly Channel Checks

Despite recent negative headlines regarding a disruption in 787 aircraft production, we are sticking with a bullish thesis on the specialty materials group following a review of better-than-expected quarterly survey results. Communications with industry contacts confirmed much stronger demand/pricing trends in 2Q21, improving channel sentiment and upward forecast revisions, approaching catalysts, and more manageable inventory situations. Key data points collected over the past few months suggest there is an upward bias to consensus forecasts (looking out 3-4 quarters), with emphasis placed on companies levered to jet engine OEM demand and the premium alloy product categories (nickel-based alloys, cobalt-alloys, and specialty stainless steel). Continue reading

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5:06 AM

Allegheny Tech (ATI): Stainless and Premium Alloy Strength Sets Specialty Materials Group Apart From Metals Pack

This is no time to panic! We are sticking with bullish investment ratings on certain names from the specialty materials group despite recent downward metals and mining trading pressure. Companies like Allegheny Technologies (ATI) and Haynes International (HAYN) should benefit from strengthening top-line drivers throughout 2H21 and CY22. Continue reading

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10:04 AM

Aerospace: Upgrading Upstream Suppliers On Stronger Aero Sales Outlook And Potential Bottleneck Benefits

We are making a rotational call within the aerospace coverage group, now favoring upstream suppliers that appear to be positioned to benefit from a changing commercial aircraft production environment. The investor narrative may shift to the premium forgers and/or specialty materials providers earlier-than-expected as the supply chain readies for a sharp inflection in demand for 737MAX or A320neo applications, looking beyond negative near-term earnings expectations. As such, we are changing ratings on a few companies that fit into that description. Today, we are formally upgrading Hexcel Corporation (HXL) and Haynes International (HAYN) to Strong Buy investment ratings and moving Allegheny Technologies (ATI) over to Outperform. We had previously rated all three Hold. Continue reading

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8:28 AM

Specialty Materials: Increasing Our Titanium Industry Demand Projections For The First Time In 2-3 Years

Now there are two reasons for all of us to be excited about the summer: (1) Top Gun 2 will be in your local theaters on July 2; and (2) there now seems to be a light at the end of the titanium tunnel! This week, we formally increased our five-year ti industry forecasts to fully account for an improving aerospace outlook and better-than-expected survey results in May. While the underlying demand environment remains depressed in 1H22, nearing the lowest point since 2003-2004, there are hints of stabilization… Continue reading

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5:07 AM

Allegheny Technologies (ATI): Increasing Estimates On Improving Demand Outlook and Future Aero Build Rates

We are increasing Allegheny Technologies (ATI) estimates to reflect a growing upward bias associated with rebounding commercial aerospace demand momentum, incremental macroeconomic strength, and better-than-expected survey results. After accounting for the latest MAX, NEO and LEAP production schedule revisions and channel reports of rebounding premium alloy volumes , we now expect the company to generate generating positive EPS results by 1Q22. Continue reading

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7:31 AM

Aerospace: Suppliers Are Reacting To The New LEAP Production Targets

General Electric (GE) held a conference call with its major suppliers to review all details behind the newly implemented LEAP production schedule and to ensure supply chain alertness. Last week, the company effectively raised the CY22 production outlook to 360-370 engines to account for stronger single-aisle aircraft build rates. This was the third major scheduling adjustment announced by the aircraft OEMs and jet engine suppliers, which suggests an upward bias to CY22-23 expectations for the coverage group. Continue reading

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6:53 AM

The Titanium Snapshot (ATI, HAYN, CRS)

We are not picking up any new market intelligence this month to suggest there is an upward bias to earnings expectations for the specialty materials peer group. Last month, we raised near-term forecasts to reflect the better-than-expected nickel-based alloy and jet engine demand trends. However, we see few similarities in the titanium space as volume growth is holding in negative territory and contacts are still forecasting negative full-year growth. The main difference between this market and other alloys is the excess inventory held by the aero supply chain which could push the recovery starting point 6-9 months to the right (for companies levered to commercial airframe applications). Continue reading

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10:45 AM

Specialty Materials: Increasing Estimates On The Premium Alloy Suppliers Levered To Jet Engine

Positive data points and contact commentary collected during quarterly checks on the specialty materials group serves as the key catalyst behind the upward estimate revisions we applied to certain names within our coverage universe. Today, we raised estimates on Allegheny Tech (ATI) and Haynes International (HAYN) to reflect the upward bias associated with enhanced aerospace and turbine sales exposure. Continue reading

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10:31 AM

Allegheny Technologies (ATI): Upgrading The Shares To A Hold As GE Provides Early Jet Engine Supplier Optimism

We are upgrading the shares of Allegheny Technologies (ATI) to a HOLD. After speaking with industry contacts and reviewing aerospace OEM production schedules, we believe earnings estimates are more likely to move higher from the current point. Despite our concerns regarding the extended valuation, we decided to move to a neutral position on the shares as we can no longer identify a “smoking gun” that could push the stock price meaningfully lower. Continue reading

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8:50 AM

Haynes International (HAYN): Another Weak Report But An Inflection Point May Finally Be On The Radar (Recap)

The HAYN management team is echoing a similar sentiment as most of its direct competitors: While most of the operating results reported this month have been underwhelming and CY21 earnings expectations are generally subdued, the specialty materials peer group seems to be approaching a point of stabilization. Companies levered to the premium alloys expect an inflection point to develop within the next 2-3 quarters with the titanium turn seen lagging by 1-2 quarters. Continue reading

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8:30 AM

Allegheny Technologies (ATI): The Company Closes Out CY20 With A Fourth-Straight Earnings Beat (Recap)

Allegheny Technologies (ATI) reported an adjusted 4Q20 earnings loss of $0.33/share, which exceeded consensus expectations on better-than-expected AAS segment results, stabilized jet engine demand, and portfolio reshaping (Tier4: -$0.40; Street: -$0.36). CEO Bob Wetherbee and his leadership team were highly focused on portfolio optimization and their aggressive efforts started to bear fruit, clearly demonstrated by four consecutive quarterly EPS beats (against the COVID-19 market backdrop). Continue reading

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1:20 PM

Allegheny Technologies (ATI): What Are The Odds The Dreamliner Turns Into A Supplier Nightmare?

We lowered earnings estimates for two of The Boeing Company suppliers potentially over-levered to the Dreamliner program: Allegheny Technologies (ATI) and Hexcel Corporation (HXL). The shares of both companies have traded higher over the past few months, but the valuation looks overextended to us. We remain particularly guarded on the ATI due to the enhanced program leverage. Our UNDERPERFORM rating includes a revised target price of $11/share (up from $8), reflecting about 40% downside versus the Thursday close. Continue reading

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9:52 AM

The Titanium Snapshot – December Update

Feedback coming out of the specialty materials channel supports the bearish call we are making on the global titanium market and selected companies within the specialty materials peer group. Bottomline, raw material providers, mill contacts, metal distributors, fabricators, and premium forgers are all voicing concerns about an extended period of end-demand weakness, a difficult CY21 environment, operating inefficiencies, and destabilized pricing environment.

Names within in our coverage universe with titanium leverage include Allegheny Technologies (ATI), Howmet Aerospace (HWM), Carpenter Technology (CRS) and Haynes International (HAYN). Continue reading

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2:10 PM

Haynes International (HAYN): We Are Not Ready To Clear The Shares For Takeoff; Initiating Coverage With A HOLD

Today, we are formally initiating coverage on Haynes International (HAYN) with a HOLD rating. While we certainly understand the initial exuberance around the aerospace suppliers and specialty materials peer group, following Monday’s vaccination news, we caution investors that underlying fundamentals are still quite weak. We prefer to wait for evidence of better titanium and nickel-based alloy trends before turning more constructive on this company or the peer group. Continue reading

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8:37 AM

Allegheny Technologies (ATI): Initiating Coverage With An UNDERPERFORM Recommendation

We are initiating formal coverage on the shares of Allegheny Technologies (ATI) with an UNDERPERFORM recommendation and twelve-month target price of $8. While we are somewhat intrigued by the long-term value associated with: the calculated portfolio firepower (during periods of cyclical strength); recent market share gains; and the cost reduction measures implemented by the management team, we could not ignore the pronounced weakness in commercial aerospace demand and historically weak survey results in 2H20. Continue reading

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7:00 AM
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