Commercial Aerospace And Defense Drive ATI's Growth Amidst Market Fluctuations

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ATI Inc. expects a flat first half of 2024 followed by a strong recovery in the second half, with momentum continuing into 2025 and 2026.The company operates in the high-performance materials and ...

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Fluctuations\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-01 17:57 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4681438-commercial-aerospace-and-defense-drive-atis-growth-amidst-market-fluctuations><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>ATI Inc. expects a flat first half of 2024 followed by a strong recovery in the second half, with momentum continuing into 2025 and 2026.The company operates in the high-performance materials and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4681438-commercial-aerospace-and-defense-drive-atis-growth-amidst-market-fluctuations\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU1914381329.SGD","symbol_name":"Allianz Best Styles Global Equity Cl ET Acc 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Resources"},"translate_title":"商业航天和国防推动ATI在市场波动中增长","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"ANIOY":1,"ATI":1,"STZHF":1,"HWM":1,"HAYN":1,"GEV.WI":1,"ENA.AU":1,"CRS.AU":1,"CRS":1,"BRK.B":1,"BRK.A":1,"ARKG":0.81},"content_text":"ATI Inc. expects a flat first half of 2024 followed by a strong recovery in the second half, with momentum continuing into 2025 and 2026.The company operates in the high-performance materials and solutions sector, primarily serving the aerospace and defense markets.ATI has competitive advantages in research and development capabilities, strong financial performance, and market leadership, positioning it for long-term success.Monty Rakusen Thesis High-performance materials producer ATI Inc. (NYSE:ATI) expects the first half of this year to be relatively flat and then stage a strong recovery in the second half. The momentum is expected to continue in 2025 and 2026. As a result, EPS and the share price are expected to be weak in the short term, but pick up later, driving up EPS and the share price. I expect the share price to rise by mid-single digits over the next 12 months. Further, I believe it is a good candidate for investors with a mid to long-term outlook. About ATI This growth company describes itself as, \"a global producer of high performance materials and solutions for the global aerospace and defense markets, and critical applications in electronics, medical and specialty energy.\" On its website, it also explains that it became the company it is now with a 1996 merger between Teledyne and Pittsburgh-based Allegheny Ludlum Corporation. The former was a conglomerate of electronics and aerospace, industrial, and consumer products founded in the 1960s. The latter was \"a pioneering innovator in steel alloys and processes\" founded in 1901. The merged entity was originally known as Allegheny Technologies Inc., and in 2022 the name was officially abbreviated to ATI. ATI operates through two business segments: High Performance Materials & Components [HPMC] and Advanced Alloys & Solutions [AA&S], according to its 10-K for 2023. HPMC focuses on aero-engine materials and components growth, and serves mainly the aerospace and defense markets. Roughly 60% of its revenue comes from commercial jet engine products (this business has been ATI's main source of sales and EBITDA growth for several years). AA&S specializes in high-value flat products, mainly for the energy, aerospace, and defense end markets, which provide over 60% of its revenue. The company operates globally, and in the 10-K it reported that international business contributed about 46% of total annual sales. At the close of March 28, 2024, its shares were valued at $51.17, and its market cap was $6.37 billion. Competition and competitive advantages In the 10-K, ATI named its HPMC competitors as Precision Castparts Corporation, a subsidiary of Berkshire Hathaway Inc. (BRK.A)(BRK.B); Howmet Aerospace Inc. (HWM); Carpenter Technology Corporation (CRS); and Aubert & Duval. For AA&S, its two main competitors are Haynes International (HAYN) and VDM Metals GmbH, a subsidiary of Acerinox S.A. (OTCPK:ANIOY). ATI argues in the 10-K that its research and development capabilities give a competitive advantage in developing new products and manufacturing processes. R&D spending in 2023 was $22.1 million, up from $17.7 million in 2022. Much of that R&D was devoted to developing differentiated products, which, the company says, are set apart by its materials science expertise and advanced process technologies. It added, \"ATI delivered strong results for fiscal year 2023 as demand for our differentiated materials accelerates.\" According to a SWOT analysis at Discounted Cash Flow, ATI has several key strengths, including consistently strong financial performances, market leadership, innovative products, strategic partnerships, and a talented team. Some or all of these could translate into competitive advantages. Margins If those edges and strengths listed above are real, then we should see robust margins. That turns out to be the case:  Gross profit margin [TTM]: 19.48%, which is good but still below the Materials sector median of 28.39%. EBITDA margin [TTM]: 12.60%, again below the sector median, which in this case is 17.28%. Net income margin [TTM]: This is a line where ATI shines. It has a margin of 9.84%, above the sector median of 5.12%. Return on common equity [TTM]: 33.97%, which is far above the sector median of 6.31%.  ATI also looks good when compared to the sector medians for cash per share [TTM], $5.86 versus $1.48 and net income per employee [TTM] at $56,270 versus $23,610 for the sector. The data indicate that ATI has competitive advantages and at least a narrow moat. At the same time, if we look at a one-year chart, we see net income growing in relation to both revenue and EBITDA: ATI Revenue EBITDA NI chart (SeekingAlpha ) Note how the gap between revenue and net income has narrowed over the past couple of quarters. This indicates that the company is becoming more effective and/or efficient in turning revenue into net income and EPS, assuming the share count hasn't risen. One of the main reasons for that improvement is its serious efforts to reduce inventory costs. On the February 1 earnings call, Wetherbee said, \"My drive for operational efficiency means we're consciously reducing the inventory cushion that requires our team to operate and lead differently.\" Growth On a year-over-year basis, ATI earns high grades: Revenue growth of 15.20% versus 5.98% for the Materials sector median; EBITDA growth of 19.01% compared to 8.82% for the sector; and EPS diluted growth of 17.17% versus 7.89%. The share price has also grown rapidly, since bottoming out during COVID-19: Data by YCharts The Wall Street analysts covering ATI expect modest growth of revenue over the next three years: 7.25% this year, 7.35% in 2025, and 4.20% in 2026. Turning to earnings, the analysts expect negative growth this year, but robust growth in 2025 and 26: ATI EPS Estimates table (SeekingAlpha ) The company's guidance for this year is bullish. In the Outlook section of the Q4 and full-year 2023 earnings release, former CEO Wetherbee said, \"There are now more commercial jet engines on firm industry backlog than at any time in history,\". To get more specific, it is expecting modest growth in the first half of this year, then a strong second half. In the earnings call, the CEO explained that industrial demand stabilized in Q4-2023, and a recovery is expected in the second half. Wetherbee added that the company expects revenue to exceed $5 billion and adjusted EBITDA to surpass $1 billion by 2027. Management and strategy ATI is in the midst of a transition at the top. On February 23, the company announced Kimberly Fields would succeed Robert Wetherbee as CEO. Fields will also join the board of directors. Before joining ATI in 2019, she was group President at IDEX Corporation, was Executive Vice President of steel producer EVRAZ's (ENA) North American Flat Products business, and General Manager of Industrials at GE Energy (now GE Vernova (GEV.WI)). Chief financial officer, Don Newman took on his current roles as Senior Vice President, Finance and CFO in 2020. Prior to ATI, he was CFO at Stelco Holdings Inc. (OTCPK:STZHF). I haven't seen a strategy statement put out by the company, however, Wetherbee did mention in the earnings call, \"we're doing what we said we would do, executing our strategy of aerospace and defense leadership, delivering on our customer and shareholder commitments. The benefits show in our bottom line.\" In the annual report for 2023, Lead Independent Direct J. Brett Harvey said of the retiring Wetherbee, \"As CEO, he's dramatically accelerated ATI's strategy of high performance and differentiation, firmly positioning the company as an aerospace and defense leader solving our customers' most extraordinary challenges. Through a deliberate and balanced capital deployment strategy, the team has maximized shareholder returns.\" In the 10-K, management noted that sales to the aerospace and defense markets reached 59% for the year 2023. They added, \" we are progressing quickly towards our goal of 65% of sales to these markets.\" Assuming 2024 is a reasonable year, ATI may hit that target. If so, the firm will presumably set a new target or targets. In any case, I would expect them to reach 65% soon. Valuation ATI is not a bargain stock, which is not surprising for a company that has been growing quickly. Here are some of the key ratios:  P/E Non-GAAP [FWD]: 22.00 compared to 16.86 for the Materials sector median. PEG Non-GAAP [FWD] is not available. EV/EBITDA [FWD] is 11.20 versus 8.61 for the sector. Price/Sales [FWD] = 1.45 compared to 1.31. Price/Book [FWD]: 4.23 versus 1.93 for the sector.  When working with growth stocks, I like to see the PEG ratios below 1.00, and while the forward metric is unavailable, the TTM is, and comes in at 0.70 versus 0.84. Both of those numbers suggest the stock and the sector are undervalued. To put the price in context, here is a five-year chart: Data by YCharts Since emerging from the COVID slump in 2020, ATI has risen steadily, albeit in a sawtooth pattern. Therefore, we might attribute the modestly high ratios above to investor expectations about future share prices and capital gains. The sawtooth pattern shows some entry points are better than others. At the moment, the price appears to be at a high point in the cycle; mentally draw a line connecting most of the bottoms to get a sense of what price the next bottom might be (low $40s, perhaps). Wall Street analysts expect this year's earnings to fall by 9.15% to $2.33. That's roughly the midpoint of management's outlook. However, as noted above, they also expect earnings to grow vigorously in 2026 and 27. Given analysts' low expectations for this year's earnings, it's not surprising their target prices don't show much growth: ATI Price Targets chart (SeekingAlpha) The analysts' record on price targets has been quite satisfactory, although those targets tend to reflect the tops of the cycle, rather than the bottoms: ATI Price Targets vs Actual Prices (SeekingAlpha ) Five of the seven analysts covering ATI rate it a Strong Buy, while two rate it a Buy. The Quant system has it as a Hold, and there have been no other SeekingAlpha analysts providing ratings in the last 90 days. I believe the stock is slightly overvalued, but still a good candidate for investors with medium to long-term horizons. Also, I agree with the analysts' price, based on the current dampened expectations, and give it a Buy rating. Had the stock been near a low point in the cycle, I would have given a Strong Buy recommendation. One other element that should get our attention is the overwhelmingly high proportion of institutional ownership: 98.90%. Most of the peaks and valleys we see on the price chart may be jockeying among these professional investors. Risk factors ATI sells its products into cyclical industries, with its fortunes mostly tied to demand for commercial aerospace and defense products. One tends to reflect the American and international economies, while the latter reflects developments, or lack of them, in the geopolitical environment. The 10-K also reported that factors such as reduced demand, intense competition and excess manufacturing capacity can lead to depressed prices. The recent bout of inflation is another exogenous factor that has led to volatile raw material prices. Because its business and manufacturing processes are complex, it needs highly skilled employees with appropriate industry and technical expertise. Shortages of such skilled workers have led to higher labor costs in some cases. The company carries what it calls \"substantial indebtedness\", some $2.2 billion on December 31, which could have adverse effects. This could be especially harmful if interest rates rise again. One area in which it has reduced its risk involves retirement benefits. Last October it bought group annuity contracts covering about 85% of its U.S. obligations. The 10-K noted, \"Using our long-term weighted average expected rate of return on pension plan assets and other actuarial assumptions, we do not expect to have any significant minimum cash funding requirements to our pension plan for at least the next ten years.\" Conclusion Since coming out of the COVID slump in 2020, ATI's share price has risen rapidly, providing generous capital gains to investors. Expect slower times in the first half of this year, then watch for a good recovery in the second half. This is a solid company, focused on growth, and making good on its strategy of generating nearly two-thirds of its sales in the commercial aerospace and defense spaces. Both of these are attractive end markets.  I believe the stock is slightly overvalued, and will rise by mid-digits over the coming year, then take off again late this year or early next year.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2424796385"}