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Allegheny (ATI) Up 50% in a Year: What's Behind the Rally?

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Shares of Allegheny Technologies Incorporated (ATI - Free Report) have surged around 50% over a year, outperforming the industry’s gain of roughly 38%.

Allegheny has a market cap of roughly $3.3 billion and average volume of shares traded in the last three months was around 1,700.8K.

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


Driving Factors

Better-than-expected first-quarter earnings performance, upbeat outlook and the company’s actions to improve its operations and cost structure have contributed to the rally in Allegheny’s shares. Allegheny racked up a positive earnings surprise of 33.3% in the first quarter. Notably, the company has topped the Zacks Consensus Estimate for earnings in three of the trailing four quarters with an average positive surprise of 38.7%.

The Zacks Consensus Estimate for earnings for 2018 for Allegheny is currently pegged at $1.38, reflecting an expected year-over-year growth of 187.5%. Moreover, earnings are expected to register a 48.3% growth in 2019.

Allegheny expects operating margin improvement and revenue growth in its High Performance Materials & Components (HPMC) unit in 2018 from improved asset utilization and aerospace market demand growth. It also expects its Flat-Rolled Products (FRP) segment to capitalize on the operational improvements and the A&T Stainless joint venture as well as growth in differentiated products.

Allegheny also continues to improve its cost structure with its gross cost reduction initiative. In 2018, Allegheny expects to generate free cash flow of at least $150 million from ongoing operational improvements and disciplined spending.

Moreover, the company’s joint venture (JV) with Tsingshan Group Company will offer cost competitive stainless sheet products made for the North American market through a unique combination of Allegheny’s innovative, low-cost Hot-Rolling and Processing Facility (HRPF) and Tsingshan’s unparalleled Indonesian refining, mining and castings assets, and the JV’s unique Direct Roll Anneal and Pickle facility in Midland, PA.

The JV supports Allegheny’s considerable investment in the U.S. manufacturing operations, especially its HRPF facility, which will provide value addition to the processing services for the JV’s finished products.

Other Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include FMC Corporation (FMC - Free Report) , LyondellBasell Industries N.V. (LYB - Free Report) and Methanex Corporation (MEOH - Free Report) , each carrying a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

FMC has an expected long-term earnings growth rate of 14.3%. Its shares have gained roughly 22% over a year.

LyondellBasell has an expected long-term earnings growth rate of 9%. The company’s shares have rallied around 31% in a year.

Methanex has an expected long-term earnings growth rate of 15%. Its shares have shot up roughly 68% over a year.

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