Recent Posts

The Boeing Company (BA): Storm Before The Calm – Lowering Estimates Ahead Of New Master Schedule

The Boeing Company (BA) model was updated to account for slightly weaker-than-expected commercial aircraft deliveries and expected changes to 737 build rate increase targets over the next 18-24 months. We now forecast reduced 2H22 earnings potential for 2H22 after applying slightly more conservative BCA segment assumptions. However, the updated CY23-24 estimates remain firmly above consensus. Aircraft delivery projections were essentially pushed to the right due to supply chain factors but underlying demand for next-generation jets does not appear to be waning. Our positive thesis many have been confirmed last week after industry contacts shared some of the details expected to be included in new master production schedules. Continue reading

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6:26 AM

Tale Of The Tape: Carpenter Technology Versus Haynes International

Hello Fight Fans! Welcome to another “Tale of the Tape.” A unique report best described as another way for Tier4 Research to highlight areas of change, identified by proprietary channel checks, with a fresh look at the potential winners/losers selected from various peer groups. Today’s research undercard focuses on specialty materials, an underfollowed space exhibiting healthy trends and sequentially stronger survey data points. Do not be fooled. We are not talking about titanium, the product group that monopolized our research time and energy last month. This time we investigated the surprising nickel-based alloy market strength and bullish feedback offered by industry contacts in recent days. Companies within our coverage universe levered to upstream production seem ripe for outperformance and upward estimate revisions on robust demand/pricing undercurrents and incremental volume opportunities tied to PCC market share spillage. With that introduction out of the way, we are excited for the main bout which features two STRONG BUY rated contenders vying for the title of TOP PICK: Carpenter Technology (CRS) and Haynes International (HAYN). Continue reading

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1:01 AM

ATI Incorporated (ATI): A Texas-Sized Earnings Beat With Side Of Raised EPS/FCF Guidance

We remain confident with the STRONG BUY investment rating on ATI Incorporated (ATI) following a review of the details collected from the quarterly earnings report and expected commercial aerospace market drivers. There do not appear to be very many holes in the ATI story right now, which should result in upward consensus estimate movement and increasingly bullish CY23-24 outlook. End-market drivers are strengthening, ATI improved contract share for several aerospace products, the balance sheet looks much healthier, and management execution has been solid. Continue reading

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6:16 AM

The Boeing Company (BA): The Story Is Slowly Coming Together; Quarterly Earnings Recap

The Boeing Company (BA) earnings update was generally in-line with expectations and investors seem comfortable with the updated corporate outlook (despite modestly negative 737 program commentary). The portfolio seems to be coming back together after three turbulent years. Going forward, we anticipate a shift in focus to the potential upward bias to medium-term earrings expectations given the: FAA recertification of the 787 aircraft; recovery in aero aftermarket demand (back to pre-COVID levels), slowly improving international airline travel situation (or wide-body delivery outlook) and improving management execution. Continue reading

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11:37 AM

The Boeing Company (BA): Good Momentum Heading To Next Week’s Quarterly Earnings Report

We are raising the 2Q22 earnings forecast for The Boeing Company (BA) ahead of the quarterly report (scheduled for next Wednesday) following the better-than-expected commercial aircraft delivery report for the month of June. Despite our relatively subdued 2H22 outlook and limited 737 production visibility, we still anticipate a continuation of the positive trading momentum for the rest of the month, following: a successful Farnborough Air Show, expected more upbeat commentary provided by the management team next week, and regulatory approval for the resumption of 787 aircraft deliveries. Continue reading

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9:21 AM

Carpenter Technology (CRS): Upgrading Shares To A Strong Buy On Survey Strength And Rising Mill Price Environment

We are upgrading the shares of Carpenter Tech (CRS) to a Strong Buy and raising estimates ahead of the quarterly earnings report scheduled for next week. Management commentary and near-term segment guidance should confirm our bullish thesis and stronger specialty material survey data points collected during CY2Q. There now seems to be a disconnect between investor expectations around metals/materials group and forward-looking projections provided by contacts levered to premium alloys and stainless products. Continue reading

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9:04 AM

ATI Incorporated (ATI): Our Positive Thesis Is Reinforced By Titanium, Raising Estimates

We increased Allegheny Technologies (ATI) earnings estimates to account for underlying titanium market optimism and favorable long-term aerospace market share outlook. Our portfolio analysis and updated modeling assumptions ties into a positive-leaning specialty material note issued yesterday morning that referenced relative titanium mill demand strength and upward spot price movement evident during recent channel checks. Against the backdrop of recent/pending negative headlines, geopolitical tensions, macroeconomic uncertainties, and widespread cost pressure, we believe ATI may still be positioned to meet/exceed Street expectations. Continue reading

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7:31 PM

The Boeing Company (BA): Aerospace Suppliers Expect 737 Production Schedule Targets To Be Lowered

We lowered Boeing Company (BA) estimates to account for the unexpected negative headline pertaining to a forced 737 assembly line halt in May, confirmation of fewer-than-expected aircraft produced during 1H22, reduced 737 rate increase probability in 2H22, and revised commercial aircraft delivery assumptions. Upon the consideration of the increasingly negative aero channel outlook, on-going geopolitical tensions, and macroeconomic uncertainty, we expect the BA management team to reset/extend the 737-production ramp timeline. Continue reading

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2:10 AM

The Boeing Company (BA): All Signs Point To Severe Summer Turbulence And Possible Aero Sentiment Change

We lowered earnings estimates and our twelve-month price target on The Boeing Company (BA) today after discounting expected effects pertaining to a rigorous FAA aircraft certification process, challenging demand environment, diminished supply chain reliability, and incremental balance sheet stress. The updated CY22 EPS outlook accounts for lower commercial jet delivery assumptions, new accounting charges, and reduced liquidity. We also believe there may be another round of negative updates looming for investors to digest this summer . Continue reading

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11:00 AM

Haynes International (HAYN) : Nickel In Our Thoughts – Adjusting Model To Reflect Mill Demand Strength And New Cost Assumptions

We spent time reviewing the Haynes International (HAYN) model this week for a better sense of the underlying portfolio earnings power and understanding of the near-term volatility risk against the backdrop of extreme market/cost fluctuations. Preliminary analysis reconfirmed our favorable multi-year earnings outlook and the main drivers behind our bullish investment thesis. That said, we expect a bumpy path to mid-cycle earnings due to the indirect LME trading influence Continue reading

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6:33 PM

The Boeing Company (BA): Initial Look At Titanium Procurement Risk Following New Developments In The Ukraine

There does not appear to be immediate alloy sourcing risk for The Boeing Company (BA) related to the changing Ukraine situation. While Russian supplier, VSMPO-Avisma, represents a large portion of the annual titanium requirement, our updated analysis suggests BA should be somewhat protected this year given the excess inventory on hand along with domestic melt availability. That said, we proactively lowered the CY22 earnings forecast today to reflect a six-month push out of aircraft delivery recovery assumptions, focusing on a less-certain macro environment, timing on Dreamliner recertification, and supply chain constraints. Continue reading

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2:12 AM

Hexcel Corporation (HXL): Upgrading Shares To Strong Buy Rating Ahead Of Potential Trading Catalysts

This looks like an interesting point in time for investors to turn more aggressive on Hexcel Corporation (HXL) despite the muted outlook for wide-body aircraft and BA787 aircraft program. Focusing on the improving macro environment, rebounding aerospace supplier survey data points, temporary lull in military-related demand, and favorable cost structure, we anticipate a steady improvement in top-line growth and operating margins over the next few quarters. As such, we now expect HXL to reach the high-end of the full-year guidance range (if not exceed) on Airbus supply chain sourcing strength. Continue reading

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9:13 AM

The Boeing Company (BA): Emerging From Darker Clouds; Lowering Full-Year Earnings Outlook

We updated our Boeing Company (BA) model this morning to account for the relatively cautious near-term outlook provided by the management team and increased 787 program costs. The shares have been under pressure since the issuance of weaker-than-expected 4Q21 earnings results (down 6-7%), which seemingly presents an interesting entry point for new investors given the lack of meaningfully negative catalysts/headlines on the horizon. Continue reading

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2:32 AM

The Boeing Company (BA): Lowering Estimates Ahead Of The CY4Q Earnings Update

We are lowering estimates on The Boeing Company (BA) ahead of the 4Q21 earnings release scheduled for Wednesday, January 26, focusing on the downward bias to current BCA segment expectations. Upon final review monthly aircraft delivery reports, the recent commentary provided by airline industry executives, and feedback collected from the aerospace supply channel, we still see near-term earnings shortfall risk over the next 2-3 quarters and expect the executive management team to temper commercial aircraft delivery expectations for CY22 Continue reading

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2:03 AM

Carpenter Technology (CRS): The Grinch Came To Reading This Year; Downgrading Shares To Outperform

We are lowering Carpenter Technology (CRS) estimates to align with the cautious corporate guidance issued earlier in the week. Capping off a problematic six-month period, the management team attributed an unplanned forge press outage, inflationary pressures, and labor shortage issues to revised SAO expectations and a much lower FY2Q EPS outlook of ($0.60)-($0.65). Given the limited near-term earnings visibility and growing market share concerns, we are downgrading CRS to an Outperform rating (versus a Strong Buy). Continue reading

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7:46 AM

The Boeing Company (BA): Communicating A More Conservative 787 Production Recovery Timeline; But Talking Up 777

We updated The Boeing Company (BA) model today, reacting to some of the information/thoughts shared by industry contacts following a supplier conference call held late last week. Bottom-line, while the management team formally pushed out 787 aircraft recovery expectations by roughly 6-7 months (as expected), the net-change to the production schedule did not reach worst-case scenario levels that had been speculated by certain company executives. This, combined with a modestly improved 777 program outlooks, resulted in a slight increase to our CY22-23 estimates. Continue reading

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8:31 AM

The Boeing Company (BA): We See Increasing Risk To Commercial Aircraft Delivery and Production Forecasts

We are lowering estimates on The Boeing Company (BA) today to reflect lower commercial aircraft delivery assumptions and BCA margin contraction risk. Based on market intelligence collected from aerospace suppliers over the past few days, we believe there is increasing risk to the current 787 and 737 aircraft delivery/production forecasts, which could come into focus over the next few days. Continue reading

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7:59 PM

Haynes International (HAYN): Strong FY4Q Results Confirm Early Corporate Strategy Benefits

The FY4Q beat, favorable top-line and earnings guidance, and general commentary offered by the Haynes International (HAYN) management team during the recent investor call reaffirms our bullish view on the shares. We believe the portfolio is uniquely positioned to capture strong earnings growth over the next two years, driven by underlying end-market demand strength, enhanced market positioning, a much lower mill operating cost position, and limited premium melt supply. Today, we raised our earnings estimates which ultimately led to a revised twelve-month target price of $49/share (up from $45). Continue reading

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12:35 PM

ATI Incorporated (ATI): Time To Focus On Aerospace Demand Visibility and New Catalysts

There is an interesting set up for Allegheny Technologies (ATI) heading toward CY22 as the company exited from the 3Q21 earnings period relatively unscathed by raw material/labor constraints and the commercial aircraft production hiccups. After updating our commercial aerospace demand assumptions and reviewing notes from the conference call, we reiterate the Strong Buy investment rating on the shares and $30 target price. Continue reading

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6:48 PM

Carpenter Technology (CRS): Unimpressive Quarterly Results/ Guidance Cannot Overshadow Aerospace Backlog Strength

We reexamined our investment rating and target price following the issuance of a relatively messy quarterly report and disappointing segment guidance, which forced us to lower fiscal-year estimates. Ultimately, we decided to maintain the STRONG BUY rating on the shares, despite the near-term margin uncertainty and possible customer agitation with late mill shipments, for three reasons: (1) confidence in underlying aerospace demand strength for CY22; (2) limited raw material cost exposure for CRS versus the peer group; and (3) potential top-line benefits associated with the on-going Special Metals strike. Continue reading

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9:47 AM

The Boeing Company (BA): Lowering Estimates Ahead Of Quarterly Update On Revised BCA Segment Outlook

We lowered estimates to better align with weaker-than-expected aircraft deliveries, increased 787 program cost assumptions, and indirect headwinds tied to COVID-19. As mentioned in a note issued earlier this week, we believe investors should prepare for a kitchen-sink quarter, with management potentially resetting delivery, operating margin, and FCF expectations. In conjunction with an increasingly cautious near-term outlook, we reduced the twelve-month target price to $250/share. Continue reading

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12:40 PM

Hexcel Corporation (HX): Downgrading Shares To Outperform On Reduced Near-Term Earnings Visibility

Hexcel Corporation is one of the companies positioned within the aerospace supply channel with elevated exposure to the market headwinds we highlighted in prior notes, including a destabilized 787 aircraft program (following a pullback in monthly build rates) and volume disruptions associated with extended military production bottlenecks. This morning, we lowered estimates on HXL to fully discount a delayed sales recovery risk or weaker-than-expected shipments to key customers like Boeing and Lockheed Martin. With respect to the limited near-term earnings visibility, we also downgraded the shares to OUTPERFORM (versus Strong Buy). Continue reading

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3:44 AM

Carpenter Technology (CRS): The Inflection Point May Still Be Two Quarters Away – Lowering CY22 Estimates

We are lowering estimates for Carpenter Technology (CRS) once again to better align with the potential risks highlighted in a report published last week (BA787 and military/defense) and to discount the impact from a delayed ramp in premium alloy mill demand. Additional analysis suggests the company may be 1-2 quarters away from realizing any benefits (or positive EPS results) associated with improving jet engine orders and/or commercial aircraft build rates. Moreover, CRS may have slightly more exposure to any negative direct/indirect events tied to the coronavirus variant outbreak, semiconductor chip shortage, and Boeing 787 program instability (versus the peer group). Continue reading

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8:15 AM

The Boeing Company (BA): Updated Scenario Analysis Based On Existing Commercial Aircraft Production Schedules

We updated The Boeing Company (BA) model to align with expected commercial aircraft deliveries and future production changes. Revised assumptions for the BCA segment resulted in a slightly lower earnings outlook for this year and CY22, with the primary negatives related to the 737 and 787 aircraft programs. Downward adjustments aside, we still believe the BA shares are attractively valued today, especially after completing our EPS upside analysis. Bottom-line, the core portfolio earnings power strengthens considerably (and the FCF generation) if the company can realize those aggressive aircraft production targets embedded in the latest schedules shared with the global supply chain. Continue reading

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10:05 AM

ATI Incorporated (ATI): Raising Estimates On Projected Aerospace Demand Strength; New LEAP Outlook

We are increasing Allegheny Technologies (ATI) estimates to account for an increasingly favorable commercial aerospace sales outlook, better-than-expected specialty materials survey results and upward movement in product pricing. After adjusting for the new production schedules shared by jet engine manufacturers and rising single-aisle aircraft build rate assumptions, the company appears to be on-track to generate $1.05-1.10/share of earnings by CY23 on stronger mill volumes and favorable premium forge sales contribution. Continue reading

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8:49 AM

Carpenter Technology (CRS): Initiating Coverage With A Strong Buy; This Is Our New Top Pick

We are initiating coverage on Carpenter Technology (CRS) with a Strong Buy investment rating and $50/share target price. Following a short period of trading weakness, we are comfortable with the lower entry point. The shares look undervalued today, especially after the consideration of better-than-expected survey results and backdrop of macroeconomic strength, rebounding channel sentiment, commodity nickel price inflation and enhanced commercial aero demand visibility. Market intelligence suggests the specialty materials group is at or near a summer inflection point which should be followed by a multi-year period of above-average top-line growth. Continue reading

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11:47 AM

The Boeing Company (BA): Expect A Bumpy Path To Earnings Recovery; Lowering Estimates

We are lowering estimates on The Boeing Company (BA) to account for the approaching commercial aircraft segment shortfall. We expect total deliveries to fall about twenty jets below 2Q21 forecasts as another FAA inquiry has resulted in a 787-customer shipment halt, which translates into roughly $0.50/share of near-term earnings dilution in our model. Presumably, consensus expectations will reset following the company issuance of another disappointing monthly aircraft delivery report in early July. Continue reading

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7:32 AM

ATI Incorporated (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

ATI Incorporated (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

The Boeing Company (BA): New Production Schedules Confirm Management Confidence In 737 Demand – Upgrading Shares To Outperform

We are upgrading the shares of The Boeing Company (BA) to an OUTPERFORM recommendation today, with a twelve-month price target of $275/share, following the early identification of positive trading catalysts expected to develop in the coming months. Notably, our latest aerospace channel checks, which included discussions regarding the latest commercial aircraft production schedules released to all major suppliers, seems to be indicating an upward bias to Street expectations (focusing on CY22 and beyond). Continue reading

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9:37 PM

The Boeing Company (BA): Dissecting A Fifth-Consecutive Quarterly Earnings Loss; Will Number Six Be The Last?

A relatively upbeat aerospace market and corporate outlook provided by The Boeing Company (BA) management team, which was confirmed later in the week by Airbus (AIR), indicates the OEMs are nearing a point of stabilization. Assuming the current 737 MAX electrical situation does not become systemic problem, we believe the earnings shortfall risk may be starting to abate. We plan to take a closer look at the industry drivers and company modeling assumptions upon completion of our aero supply channel checks.

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9:00 AM

Hexcel Corporation (HXL): One Step Closer To Stability, Assuming The Aircraft Production Rates Hold

We came away from the latest Hexcel Corporation (HXL) quarterly earnings update and investor call somewhat intrigued by the latest market outlook, continuation of the cost reduction strategy, and uptick in confidence communicated by the management team. We would consider a rating change should the shares pullback and market intelligence confirm a reversal in upstream demand. Our hesitancy relates to the unfavorable macro environment and expected change in wide-body aircraft schedules (lower for longer). Continue reading

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12:45 PM

Nucor Corporation (NUE): Gauging Upside/Downside Against Our Already Aggressive $10+ EPS Forecast For CY21

After raising estimates for the current quarter and year to reflect the better-than-expected mid-quarter guidance issued by the management team last week, we examined some of the larger NUE portfolio drivers, looking to gauge the upside and downside risk as it relates to two major issues: (1) the sustainability of the Section 232 trade protections during a new period of US Presidential leadership; and (2) the upside bias associated with the release of a large infrastructure bill. Starting with a $10.00+ and $8.28/share earnings forecast for CY21 and CY22, respectively, already well above consensus, we calculated roughly $1.75-2.00 of potential earnings upside associated with surging demand for niche carbon steel products dedicated for large-volume public construction projects. Conversely, we assume there to be $1.40-1.50/share of earnings dilution risk should President Joe Biden rescind Section-232 trade protections. This implies a +30% risk/reward profile. Continue reading

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12:50 AM

Steel: Adjusting Ratings, Raising Price Targets and Revising Estimates Following Strong Survey Results

We rearranged the steel coverage group investment ratings to account for recent trading strength, the divergence between the closing prices and price targets, and higher earnings outlook(s). Today’s actions were triggered by the better-than-expected carbon steel survey results and review of future market drivers. Among the major changes, we upgraded Nucor (NUE) after considering the new earnings outlook and the rising potential for a stimulus trading boost. At the same time, we lowered STLD and RS to OUTPERFORM (versus Strong Buy) following the recent surge in trading. While still positive on these two names, we would be less aggressive. Finally, we referred to the surprising level of bullishness building throughout the channel and strong survey data points. The most interesting takeaway involved steel contacts raising their year-end HRC price forecast by $100-125/ton. Continue reading

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6:04 PM

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

ATI Incorporated (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

ATI Incorporated (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

The Boeing Company (BA): Downgrading To Underperform On Commercial Aircraft Demand And Balance Sheet Concerns

We downgraded the shares of The Boeing Company (BA) to UNDERPERFORM this evening following a thorough review of important macro drivers and the secondary data collected from our aero supplier surveys. Ahead of the company’s 4Q earnings update, scheduled for late-January, we believe BA shares could dip below $200 should the investor focus shift to a muted earnings growth outlook and balance sheet stress. Coincidently, we are also less-bullish on our beloved Cleveland Browns heading into the Sunday playoff game, but we digress… Continue reading

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4:47 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
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