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Allegheny (ATI) to Exit Stainless Sheet Products Business

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Allegheny Technologies Incorporated (ATI - Free Report) recently stated that it is exiting standard stainless sheet products. The company is streamlining its production footprint and investing in enhanced capabilities. Per the company, these initiatives will accelerate the execution of its high-value strategy, mainly in the defense and aerospace.

Notably, the company will exit standard stainless sheet products by the mid of 2021. The product line represented $445 million of revenues in 2019 with margins of less than 1%. By exiting this business, the company expects to achieve EBITDA margins of at least 15% within the Advanced Alloys and Solutions (“AA&S”) unit as the commercial aerospace end market recovers.

Additionally, Allegheny stated that it will consolidate the finishing operations by investing in its Vandergrift, PA. This will help the company create a competitive flow path focused on boosting production of high value, differentiated materials. It expects working capital releases to fund the $65-$85 million incremental investment over a period of three years.

Further, these restructuring activities are expected to enable the AA&S business to meaningfully improve its margin profile by lowering costs and improve revenue mix as the aerospace market recovers. The company expects the implementation of these actions to result in one-time charges of $25-$30 million, which will be incurred in the fourth quarter.

Shares of Allegheny have lost 28.8% in the past year compared with the industry’s 38.1% decline.

Zacks Rank & Key Picks

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

Some better-ranked stocks in the basic materials space are Impala Platinum Holdings Ltd. (IMPUY - Free Report) , BHP Group (BHP - Free Report) and Silvercorp Metals Inc. (SVM - Free Report) , all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.

Impala Platinum has an expected earnings growth rate of 131.7% for fiscal 2021. Its shares have returned 29.5% in the past year.

BHP Group has an expected earnings growth rate of 32.4% for fiscal 2021. The company’s shares have gained 20.5% in the past year.

Silvercorp Metals has an expected earnings growth rate of 40% for fiscal 2021. The company’s shares have increased 13.2% in the past year.

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