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Will Allegheny (ATI) Miss Earnings Estimates?

SID ATI TX DNN

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Specialty steel company Allegheny Technologies (ATI - Analyst Report) is set to release its fourth-quarter 2013 results before the opening gong on Jan 22. In the last quarter, the Pennsylvania-based company racked up a 3.57% positive earnings surprise. Let’s see how things are shaping up for this announcement.

Factors to Consider this Quarter

Allegheny is contending with weak pricing and raw material cost pressure. Reduced raw material surcharges and low base prices of standard stainless products hurt the results of its key Flat-Rolled Products segment in the September quarter and might do the same in the fourth quarter. Weak demand and increased Asian imports are contributing to lower stainless steel sheet plate prices.

Demand for Allegheny’s standard stainless products has been hit by rapidly falling raw material surcharges, resulting in customers delaying purchases. In addition, the same factors appear to be influencing short-term demand for some high-value products from some key end-markets as many customers are being cautious and keeping inventories lean.

Weak demand from jet engine aftermarket and nuclear energy is expected to continue to affect Allegheny’s results. Demand for forging from construction and mining markets also remains soft.

Allegheny does not see any significant improvement in global demand in the Flat-Rolled Products segment in the near term due to the lack of mega projects. A challenging business environment (given the U.S. fiscal policy issues) is expected to affect the company’s results in the December quarter and potentially in 2014.

Earnings Whispers

Our proven model does not conclusively show that Allegheny will beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Negative Zacks ESP: ESP for Allegheny is -31.58%. That is because the Most Accurate estimate stands at a loss of 25 cents while the Zacks Consensus Estimate is pegged at a loss of 19 cents.

Zacks Rank #5 (Strong Sell): We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
 
Other Stocks to Consider

Here are some other companies operating in the basic materials sector you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Companhia Siderurgica Nacional (SID - Analyst Report) has earnings ESP of +11.11% and carries a Zacks Rank #1 (Strong Buy).

Denison Mines Corp. (DNN - Snapshot Report) has earnings ESP of +50.00% and holds a Zacks Rank #2 (Buy).

Ternium S.A. (TX - Snapshot Report) has earnings ESP of +4.69% and holds a Zacks Rank #3 (Hold).

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