We are reaffirming our Neutral recommendation on Titanium Metals Corporation (TIE) following its mixed first-quarter 2012 results. Its earnings of 15 cents a share narrowly missed the Zacks Consensus Estimate. Revenues rose 10% year over year to $276.7 million, beating the Zacks Consensus Estimate.
Sales were boosted by healthy demand for titanium products in the commercial aerospace sector. The company expects this trend to continue moving ahead. Titanium Metals foresee aircraft deliveries to remain strong in the long run as fuel efficiency and global fleet expansion across developing regions support future demand.
Titanium Metals is among the world’s leading producers of titanium-melted products and mill products. It is the largest U.S. producer of titanium sponge, a key raw material used in the production of titanium melted and mill products. Titanium Metals competes with Allegheny Technologies Inc. (ATI) and RTI International Metals, Inc. (RTI).
The company’s products are finding new areas of growth in commercial aerospace, defense, energy and several other industries. The rapid growth in China and other Southeast Asian economies has ushered in strong demand for titanium-intensive industrial equipment.
Titanium Metals has been successful over the last several years in establishing significant flexibility and cost advantages in its entire manufacturing process. The company, in 2011, acquired certain assets, intellectual property and know-how in order to enhance its production capacities and capabilities while extending its product technology.
We believe the company’s fiscal discipline and industry experience have allowed it to manage production rates and costs effectively while investing capital conservatively and maintaining a healthy balance sheet. Moreover, Titanium Metals’ operating flexibility positions it well to take advantage of opportunities for strengthening and expanding its presence in key markets.
However, we remain on the sidelines given pricing pressure, competition, the cyclical nature of aerospace industry and the expected hike in raw material cost in 2012.
Titanium Metals is facing pricing pressure on mill products. Moreover, prices of major raw materials including titanium sponge are expected to rise in 2012.
Our recommendation on the stock is in tandem with a short-term Zacks #3 Rank (Hold).Read the Full Research Report on ATI
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