Arconic Inc.’s ARNC stock looks promising at the moment based on its healthy growth prospects for 2019. The company’s shares are up 5.1% over the past month, outperforming the roughly 2.9% rise of its industry.
Arconic currently has a Zacks Rank #2 (Buy) and a VGM Score of B. Our research shows that stocks with a VGM Score of A or B combined with a Zacks Rank #1 (Strong Buy) or #2, offer the best investment opportunities for investors. You can see the complete list of today’s Zacks #1 Rank stocks here.
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. The trend in earnings estimate revisions also indicates a solid earnings outlook for Arconic.
Let's delve deeper into the factors that make Arconic stock an attractive investment option at the moment.
Strong Q4 Results & Upbeat View
Arconic swung to a profit (as reported) of $218 million or 44 cents per share in fourth-quarter 2018 from a net loss of $727 million or $1.51 per share a year ago. Adjusted earnings per share of 33 cents topped the Zacks Consensus Estimate of 30 cents.
Revenues went up around 6% year over year to $3,472 million and surpassed the Zacks Consensus Estimate of $3,412.3 million. Organic revenues rose 10% year over year on the back of higher volumes across all businesses, including double-digit growth in most major end markets.
The company expects revenues in the range of $14.3-$14.6 billion for 2019 compared with $14 billion in 2018. Adjusted earnings per share for 2019 are projected in the band of $1.55-$1.65, reflecting an increase from $1.36 recorded in 2018.
Positive Earnings Surprise History
Arconic has an impressive earnings surprise history. It beat estimates in each of the trailing four quarters, delivering an average positive surprise of 12.6%.
Annual estimates for Arconic have moved north over the past two months, reflecting analysts’ confidence on the stock. Over this period, the Zacks Consensus Estimate for 2019 has increased by around 3.8%. The Zacks Consensus Estimate for 2020 has also moved up roughly 6% over the same timeframe.
Healthy Growth Prospects
Growth prospects for Arconic look encouraging. The Zacks Consensus Estimate for earnings for 2019 for Arconic is currently pegged at $1.64 per share, reflecting an expected year-over-year growth of 20.6%. The same for 2020 stands at $1.93, indicating a year-over-year growth of 18%.
Growth Drivers in Place
Arconic is focusing on cost reduction and operational improvements across its businesses, which should lend support to its bottom line in 2019. The company expects 14-21% year over year improvement in adjusted earnings per share in 2019 driven by these actions. The company plans to cut operating costs by around $200 million on an annual run-rate basis, geared to maximize the impact in 2019.
Arconic is also seeing strong momentum in automotive, driven by the transition of the auto industry to lightweighting. Moreover, the company is witnessing healthy demand trends in the aerospace market and is actively pursuing its aerospace expansion strategy. It is well placed to gain from major contract wins in aerospace.
Arconic is witnessing strong momentum in aero engines and aero defense markets. Strong volume gains in the commercial transportation market is also contributing to its revenue growth. The company saw double-digit year-over-year growth across automotive, aero engines, commercial transportation and aero defense markets in 2018.
Momentum across these major markets is expected to continue in 2019, providing support to the company’s top line. Arconic expects organic revenue growth of 6-8% in 2019 on the back of growth in most of its major end-markets.
Arconic, in its fourth-quarter call, also stated that its portfolio will be separated into Engineered Products & Forgings and Global Rolled Products. The company is considering the sale of businesses that do not fit into Engineered Products & Forgings or Global Rolled Products. Arconic noted that the move is geared to maximize future shareholder returns.
Arconic Inc. Price and Consensus
Arconic Inc. Price and Consensus | Arconic Inc. Quote
Other Stocks to Consider
Other top-ranked stocks worth considering in the basic materials space include Kirkland Lake Gold Ltd. KL, Israel Chemicals Ltd. ICL and W. R. Grace & Co. GRA.
Kirkland Lake Gold has an expected earnings growth rate of 47.1% for the current year and carries a Zacks Rank #1. Its shares have shot up around 123% in the past year.
Israel Chemicals has an expected earnings growth rate of 10.8% for the current year and carries a Zacks Rank #2. The company’s shares have gained around 24% over the past year.
W. R. Grace has an expected earnings growth rate of 10.4% for the current year and carries a Zacks Rank #2. Its shares have gained roughly 20% in the past year.
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