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Alcoa Invests $60 Million to Expand Pennsylvania R&D Center

Zacks Equity Research

Alcoa AA is investing $60 million for expanding its R&D center in Pennsylvania to speed up the development of advanced 3D-printing materials and processes. The expansion will enable it to capture the rising demand for complex, high-performance 3D-printed parts for high-growth markets including aerospace, automotive and construction.

Alcoa, which is a leader in lightweight metals, said that the expansion is under construction in its technical center located near Pittsburgh, PA. Construction is expected to complete in first-quarter 2016. The expansion project will create over 100 full-time jobs by 2017.

Alcoa will make materials geared for an array of additive technologies at the Pennsylvania technical center. With this investment, Alcoa will be better-placed to meet the rapidly-growing demand for aerospace components made using additive technologies. Additive manufacturing is the production of 3D products by depositing one layer of material on top of another layer based on a digital model.

Alcoa also disclosed its Ampliforge process, which the company uses to design and 3D-print a near complete part and then finish it using a conventional manufacturing process such as forging. In addition to enhancing the toughness and strength of 3D-printed parts, the process also considerably reduces material input and simplifies production.

The expansion, which builds on Alcoa’s additive manufacturing capabilities across California, Georgia, Michigan, Pennsylvania and Texas, positions the company to industrialize its advanced 3D printing capabilities across a number of manufacturing facilitates.

Alcoa is increasingly looking for expansion opportunities beyond its legacy primary aluminum business and diversify into other materials such as those (nickel and titanium-based) used to make aircraft parts.

Alcoa is actively pursuing its aerospace expansion strategy. The acquisition of U.K.-based leading jet engine components maker – Firth Rixson – in a cash and stock deal worth $2.85 billion has allowed Alcoa to penetrate into a highly specialized segment of jet engine forgings.

Moreover, the $1.5 billion buyout of titanium and specialty metal products supplier – RTI International Metals – has broadened Alcoa’s titanium offerings and added advanced technologies and materials to its portfolio. The acquisition provided Alcoa with 3D printing capabilities in titanium, other specialty metals and plastics for aerospace, oil & gas and medical markets.

The acquisition of Germany-based leading provider of titanium and aluminum structural castings – Tital – has also fortified Alcoa’s position to leverage strong growth in the commercial aerospace sector and capture rising demand for advanced jet engine components made of titanium.

Alcoa’s earnings for the second quarter of 2015 missed the Zacks Consensus Estimate, hit by lower aluminum pricing. The company backed its global aluminum demand growth forecast for 2015 but cut its growth expectations for the aerospace market.

Alcoa faces a weak pricing environment, which may continue to affect its earnings. Moreover, it is exposed to softness in the European building & construction and commercial transportation markets.

Alcoa currently holds a Zacks Rank #5 (Strong Sell).

Better-ranked stocks in the basic materials space include Denison Mines Corp. DNN, OCI Resources LP OCIR and Solitario Exploration & Royalty Corp. XPL with all sporting a Zacks Rank #2 (Buy).

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