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Allegheny (ATI) Divests Titanium Investment Castings Business

Zacks Equity Research

Allegheny Technologies Incorporated ATI has reached a definitive agreement to divest its Cast Products business to Consolidated Precision Products Corp (“CPP”). The deal is subject to customary regulatory approvals and is expected to close in third-quarter 2019.

Allegheny’s Cast Products business is part of its High Performance Materials & Components (HPMC) unit. It manufactures titanium investment castings, which are mainly used by aerospace & defense OEMs for producing commercial jet airframes as well as engines. Allegheny will keep a post-casting machining facility in Salem, OR, which will provide services to CPP and others.

Notably, CPP has 16 global operating facilities that manufactures products for the defense, aerospace and industrial industries. It is a portfolio company of leading global private equity firm, Warburg Pincus.

Allegheny intends to use the gross cash proceeds for capital deployment priorities. This includes focus on improving its balance sheet by reducing corporate debt levels; building strategic cash reserves as well as funding its pension obligations. The company’s third-quarter results are expected to reflect a modest gain from this deal.

Shares of Allegheny have lost 18% in the past year compared with the industry’s 21.8% decline.

In April 2019, Allegheny stated that it expects sequential improvement in the financial results of the HPMC segment during the second quarter. However, operating margins are expected be lower than initial expectations. The company is working aggressively to offset operational challenges. It is preparing the Bakers Powder facility for additional profitable growth. Overall, the company expects profitably to improve in the second half of 2019.

Allegheny expects sales in the Flat-Rolled Products (FRP) unit to be sequentially higher in the second quarter along with a solid return to profitability. This is expected to be supported by improved customer demand for high-value products along with favorable raw material surcharge values. The company expects further increases in high-value nickel and titanium product sales during second-half 2019.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the basic materials space are Materion Corporation MTRN, Flexible Solutions International Inc FSI and AngloGold Ashanti Limited AU, all currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Materion has an expected earnings growth rate of 27.3% for 2019. The company’s shares have gained 12.3% in the past year.

Flexible Solutions has a projected earnings growth rate of 342.9% for the current year. The company’s shares have surged 91.6% in a year’s time.

AngloGold has an estimated earnings growth rate of 90.6% for the current year. Its shares have rallied 67.6% in the past year.

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