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Arconic (ARNC) Stock Pops 44% YTD: What's Behind the Rally?

Zacks Equity Research

Shares of Arconic Inc. ARNC have surged around 44% so far this year. The company has also outperformed its industry’s rise of roughly 23% over the same time frame.  Moreover, it has outpaced the S&P 500’s gain of around 17% year to date.

Arconic has a market cap of roughly $10.9 billion. Average volume of shares traded in the last three months was around 4,050.3K.


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

What’s Driving ARNC?

Upbeat earnings prospects for 2019 have contributed to the run-up in Arconic’s shares. The company, in April, bumped up its earnings and cash flow guidance for full-year 2019. The company now expects adjusted earnings for 2019 in the range of $1.75-$1.90 per share, up from the prior expectations of $1.55-$1.65. It also continues to see revenues in the range of $14.3-$14.6 billion for 2019.  

Moreover, adjusted free cash flow is projected in the band of $650-$750 million, also up from the previous guidance of $400-$500 million.

The trend in earnings estimate revisions also indicates a solid earnings outlook for Arconic. Over the past two months, the Zacks Consensus Estimate for 2019 has increased by around 7.1%. The Zacks Consensus Estimate for second-quarter 2019 has also moved up roughly 6.8% 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 $1.80 per share, reflecting an expected year-over-year growth of 32.4%. The same for the second quarter stands at 47 cents, indicating a year-over-year growth of 27%.

Arconic 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.

The company is seeing strong momentum in the automotive market, driven by the transition of the auto industry to lightweighting. It is also witnessing healthy demand trends in the aerospace market and is actively pursuing its aerospace expansion strategy.

Arconic is seeing strength in aero engines and aero defense markets. The company saw double digit growth in volumes in aero engines and aero defense in the first quarter of 2019, driving its organic revenues. Strong 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. The company is also expected to gain from favorable pricing in aerospace, industrial and commercial transportation markets.

Moreover, the company is focusing on cost reduction and operational improvements across its businesses, which should lend support to its bottom line in 2019. Arconic plans to cut operating costs by around $230 million on an annual run-rate basis with $120 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

Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include Materion Corporation MTRN, Flexible Solutions International Inc FSI and AngloGold Ashanti Limited AU.

Materion has an expected earnings growth rate of 27.3% for the current year and carries a Zacks Rank #1. The company’s shares have gained around 25% over the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Flexible Solutions has an expected earnings growth rate of 342.9% for the current fiscal year and carries a Zacks Rank #1. Its shares have surged around 133% in the past year.

AngloGold Ashanti has an expected earnings growth rate of 90.6% for the current year and carries a Zacks Rank #1. Its shares have shot up roughly 108% in the past year.

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