Allegheny Technologies Issues $350M Senior Unsecured Notes

Allegheny Technologies Inc. (NYSE:ATI) issued $350 million of 5.875% senior unsecured notes due December 2027.

The company plans to use net proceeds from the issuance along with cash on hand to fund the redemption of all its outstanding $500 million of 5.95% senior notes due January 2021 on Dec 23, 2019. These actions are anticipated to reduce its debt by $150 million and lower annual interest expenses by $9 million, starting from 2020.

The company’s debt-reduction moves along with continuous efforts to lower risk within its defined benefit pension plan provide it increased financial flexibility to drive growth.

Allegheny Technologies expects to recognize debt extinguishment charges (linked to the redemption of 2021 notes) of $21 million in fourth-quarter 2019. Moreover, the release of part of deferred tax valuation allowances is anticipated to be $30-$40 million in the fourth quarter of 2019, roughly $5 million higher than the previously disclosed range.

The company’s income tax rate (on a reported basis) is anticipated to be 23-25% of 2020 pretax results. Cash tax requirements for 2020 are expected to be similar to that of 2019. Cash tax requirements are expected to be substantially lower than 2020 reported income tax rate due to the continuous benefits of net operating loss carryforwards in the United States.

Shares of Allegheny Technologies have lost 10.7% in the past year against the industry’s 2.8% growth.

The company ended the third quarter with cash and cash equivalents of $511.3 million, up more than 233% year over year. Its long-term debt rose to $1,541.7 million from $1,535.3 million in the year-ago quarter.

The company expects backlogs for single-aisle platforms to remain strong in the High Performance Materials & Components (“HPMC”) unit. However, it expects uneven order patterns along with inventory management actions by customers to negatively impact shipments in the fourth quarter of 2019. This is likely to partly offset the benefits from Allegheny Technologies’ larger share of high-value commercial jet engine material and components.

For the Flat-Rolled Products (“FRP”) unit, the company expects consistent profitability for the fourth quarter on sustained strength in high-value products in the United States as well as the STAL joint venture. Also, favorable impacts of higher nickel prices on raw material surcharge values are expected to drive the segment.

Allegheny Technologies Incorporated Price and Consensus

Zacks Rank & Stocks to Consider

Allegheny Technologies currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the basic materials space are General Moly, Inc (NYSE:GMO) , Franco-Nevada Corporation (TSX:FNV) and Agnico Eagle Mines Limited (NYSE:AEM) , each currently carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

General Moly has an expected earnings growth rate of 12.5% for the current fiscal year. The company’s shares have gained 53% in the past year.

Franco-Nevada has a projected earnings growth rate of 46.2% for 2019. The company’s shares have rallied 43.1% in a year.

Agnico Eagle has an estimated earnings growth rate of 168.6% for the current year. Its shares have moved up 66.5% in the past year.

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