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Arconic (ARNC) Shares Pop 58% YTD: What's Behind the Rally?

Zacks Equity Research

Shares of Arconic Inc. ARNC have shot up around 58.4% so far this year. The company has also outperformed its industry’s rise of roughly 10.7% over the same time frame.  Moreover, it has trounced the S&P 500’s gain of around 18.9% year to date.

Arconic has a market cap of roughly $11.7 billion. Average volume of shares traded in the last three months was around 3,229.4K.


 

Let’s take a look at the factors that are driving this Zacks Rank #1 (Strong Buy) stock.

What’s Driving ARNC?

Strong growth prospects for 2019 have contributed to the run-up in Arconic’s shares. Arconic, in August, bumped up its earnings and cash flow guidance for full-year 2019. The company now sees adjusted earnings to be in the range of $1.95-$2.05 per share, up from the prior view of $1.75-$1.90 per share. Moreover, it now expects adjusted free cash flow to be in the band of $700-$800 million, up from $650-$750 million expected earlier.

The trend in earnings estimate revisions also indicates a solid earnings outlook for Arconic. Over the past three months, the Zacks Consensus Estimate for 2019 has increased by around 14.6%. The Zacks Consensus Estimate for third-quarter 2019 has also moved up roughly 10.9% over the same timeframe.

Growth prospects for Arconic also look encouraging. The Zacks Consensus Estimate for earnings for 2019 for Arconic is currently pegged at $2.04 per share, reflecting an expected year-over-year growth of 50%. The same for the third quarter stands at 51 cents, indicating a year-over-year growth of 59.4%.

The company is well placed to gain from strong growth across its key end-markets, especially aerospace, automotive and commercial transportation, and its actions to improve its operations.

Arconic should benefit from strong demand across automotive and aerospace markets. It is seeing strong momentum in the automotive market, driven by the transition of the auto industry to lightweighting. Arconic is also witnessing healthy demand trends in the aerospace market and is actively pursuing its aerospace expansion strategy.

The company is seeing strength in aero engines and aero defense markets with double digit growth in organic revenues as witnessed in the second quarter. Volume gains in the commercial transportation market is also contributing to its revenue growth. Momentum across these major markets is expected to continue through 2019, providing support to the company’s top line.

Moreover, Arconic is focusing on cost reduction and operational improvements across its businesses, which should lend support to its bottom line in 2019. The company now plans to cut operating costs by around $260 million (up from $230 million expected earlier) on an annual run-rate basis with $140 million is expected to be realized in 2019.

Arconic Inc. Price and Consensus

 

Arconic Inc. Price and Consensus

Arconic Inc. price-consensus-chart | Arconic Inc. Quote

Other Stocks Worth a Look

Other stocks worth considering in the basic materials space include Kinross Gold Corporation KGC, NewMarket Corporation NEU and Alamos Gold Inc. AGI, each sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Kinross has projected earnings growth rate of 160% for the current year. The company’s shares have surged around 70% in a year’s time.

NewMarket has an expected earnings growth rate of 16.2% for the current year. Its shares have gained around 15% in the past year.

Alamos Gold has estimated earnings growth rate of 320% for the current year. The company’s shares have rallied roughly 43% in a year’s time.

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