COMPANY DESCRIPTION

ATI is a producer of specialty materials and components for global markets. ATI manufacturesproducts for a diverse group of end markets.They include aerospace and defense, chemical processindustry, oil and gas, electric power generation and distribution, and medical devices. A diversified client base creates financial stability for ATI across business cycles. The company, however, facesintense competition, which could lead to loss of market share and put pressure on its margins.

 

ECONOMIC MOAT

In our opinion, Allegheny Technologies economic moat comes from intangible assets and switching costs.  ATI utilizes specialized furnaces and machinery. Allegheny’s alloys are required to undergo commissioning and qualification cycles that generally take one to three years because, in many cases, the materials must be approved by not only the company’s customers, but also by the end users.  ATI’s business relationships are very sticky and customers are reluctant to switch to unproven suppliers solely on a cost basis. 

 

OUTLOOK

Allegheny Technologies reached several long-term agreements, valued at $4.0 billion, with aerospace customers during 2014 and in early 2015. ATI is close to starting up activity at a new titanium sponge facility, which will start making jet engine parts around mid-2015.

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STRENGTHS

  • Diversified end-markets

  • Acquisition of Ladish

  • Strong R&D capability

WEAKNESSES

  • Dependence on third parties for critical raw materials

  • Lag in the delivery of services

  • Market concentration

THREATS

  • Environmental regulations

  • Intense competition

  • Risks associated with the commercialaerospace industry

OPPORTUNITIES

  • Investments to support organic growth

  • Long term agreements

The above report is for information purposes only, and is not a solicitation or offer to buy or sell any securities. Past performance is no guarantee of future performance. Neither diversification nor asset allocation ensures a profit or guarantees against loss. Before investing, investors should consider their risk tolerance, investment objectives, time horizon, available capital, and charges and expenses.  

 

The information presented in this report has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guranteed. All material is subject to change without notice. The views and opinions expressed are those of Focused Stock Research and/or WALT ST Investment Management, Ltd. and in no way reflect the views and opinions of Investment Consultants nor their Broker Dealers.

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