Allegheny Technologies (ATI) Surges On Analyst Upgrade

Shares of Allegheny Technologies Incorporated (NYSE:ATI) jumped almost 11% to close at $18.50 yesterday after analysts at Deutsche Bank (DE:DBKGn) raised their rating on the stock to "buy" from "hold." The firm also upped its price target to $20 from $15 on the shares of Allegheny. The move follows Allegheny’s recent announcement of certain actions to improve its future financial performance.

These actions include the indefinite idling of the Rowley, UT-based titanium sponge production facility and consolidation of certain titanium manufacturing operations in Albany, OR.

Allegheny continuously reviews its operations and facilities with focus on both strategic and cost competitive aspects. It considers the future market conditions – both the current and expected – as well as looks into the forecasted growth in demand for its products from all end markets. It also assesses and keeps track of global supply and demand dynamics. Based on these, the company makes efforts to deliver sustainable profitable growth, and create value for its customers and shareholders over the long term.

The actions are expected to improve Allegheny’s annual operating income by about $50 million starting in 2017. These initiatives are also expected to generate cash flow of about $50 million from reduced managed working capital as titanium sponge inventory is reduced over the next several quarters.

The company also anticipates total pre-tax, non-cash impairment charges of roughly $470 million for idled facilities, and pre-tax shutdown and idling costs of about $34 million. With these charges, Allegheny estimates about $183 million or $1.71 per share, in non-cash income tax valuation allowances related to the U.S. federal tax benefits. Total charges, including the tax valuation allowance, are forecast to be $4.89 per share. Of this, $4.83 per share is expected in third-quarter 2016, while the remainder is anticipated in fourth-quarter 2016.

Allegheny is taking several actions to improve the profitability of its operations, and increase the competitiveness of its High Performance Materials & Components segment. The company has added considerable global capacity to produce its titanium products. It has also entered into long term, cost competitive supply agreements with a number of leading global producers of premium-grade and standard-grade titanium sponge to provide a reliable supply of high quality and cost-effective titanium sponge.

Allegheny expects to see continued profitable growth in the High Performance Materials & Components unit over the next several years. The announced actions are expected to improve its operating earnings by roughly $50 million starting from 2017 onward.

Allegheny currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the basic materials sector include ArcelorMittal (NYSE:MT) , Schnitzer Steel Industries, Inc. (NASDAQ:SCHN) and Angang Steel Company Ltd. ANGGY. While ArcelorMittal and Schnitzer Steel sport a Zacks Rank #1 (Strong Buy), Angang Steel carries a Zacks Rank #2 (Buy).

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