Allegheny Technologies Upgraded 2 Notches From Underperform To Buy

Shares of Allegheny Technologies Incorporated (NYSE: ATI) were trading higher by around 9 percent Monday, partly due to a double upgrade by analysts at Bank of America. The firm's Timna Tanners upgraded Allegheny's rating from Underperform all the way to Buy with a price target boosted from $16 to $24.

Allegheny is positioned to benefit from a "hefty jet engine new technology cycle" after years of "false starts," Tanners commented in the note. Specifically, the current ramp up cycle will benefit Allegheny after years of investments in its equipment. In fact, as a high-fixed cost producer, the company will see notable engine margin improvements and even displace lower margin business.

There are four catalysts in the coming six months alone which makes the stock an attractive buy today, the analyst said. These include: 1) a ramp of the 737max and A320neo planes, 2) potential market share gains from Arconic Inc (NYSE: ARNC)'s isothermal forge delays, 3) the expected retirement of 40 percent of the FRP (flat rolled products) workforce in the coming five years, and 4) improved commodity values.

Given these four upcoming catalysts, Allegheny's stock warrants an EV/EBITDA multiple of 9 which is above its average of 8.1x, but still below the aero supplier group which is near 11x. However, there is room for even more upside from the 9x multiple as the company continues to shift more of its business to the aerospace sector.

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Benzinga's Top Upgrades, Downgrades For September 11, 2017