Friday, January 18, 2008

Allegheny Tech (NYSE:ATI): Actionable Call Alert!

- Davenport is out on Allegheny Tech (NYSE:ATI) raising Q4 EPS estimate for Allegheny to $1.52/sh (from $1.36/sh) based on an unanticipated rebound in stainless products in Q4. Firm's estimate is now the highest within the consensus of $1.40/sh. Allegheny is scheduled to report Q4 earning on Wednesday (1/23) before the open. EPS were $1.63/sh in Q4'06 and $1.80/sh in Q3. Full-year estimate is now $7.33 (up from $7.17/sh).

Davenport notes their estimate for Q4 was influenced by the company's guidance on October 12. That's when the company gave Q4 guidance of $1.20 to $1.48. At the time they thought the guidance was overly conservative, although looking at the industry data we understand why the company guided to such a range. They think mill shipments of stainless products in the month of September were at the worst level in decades! Allegheny was likely stunned at how bad its book of business was in September and felt compelled to warn the Street, not only on Q3 but how bad Q4 would be if business stayed as bad as it was in September. Instead, business appears to have rebounded significantly from a horrible September, as customer orders have resumed with stabilization in nickel/stainless prices.

Firm recommends investors buy ATI aggressively and they can do so before the earnings report. Additionally, they think the stock is deeply undervalued and we are very bullish on the long-term earnings of the company. The stock is trading at an EV-to-EBITDA multiple of 3.9x on their '08 estimate. Thinks this stock should trade at 8.5x given the earnings growth driven partly by the strength in the aerospace market. Reiterates Strong Buy on ATI and price target of $145/sh.

Notablecalls: Actionable call alert! This stock will see strong upside today and over the next week or so. Buy aggressively!

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