UPDATE: J.P. Morgan Reiterates Underweight Rating, Lowers PT on Allegheny Technologies on Tepid 2Q13 Outlook

In a report published Thursday, J.P. Morgan analyst Michael F. Gambardella reiterated an Underweight rating on Allegheny Technologies ATI, but slightly lowered the price target from $20.00 to $19.00. In the report, Michael F. Gambardella noted, “We rate shares of ATI Underweight with a December 2013 price target of $19. Our thesis for stainless steel pressures to impair ATI's earnings continues to unfold in the near term following weak 4Q12 and 1Q13 earnings as well as a tepid outlook for 2Q13 because of elevated imports, volatile and falling nickel prices, and cautious transactional demand. Additionally, we take a more measured view than the market on the benefit of marquee projects such as the Rowley titanium sponge facility (likely to decrease operating rates down from 60-65% near term) and the HRPF which will not likely materially benefit ATI until 2015 and could trigger additional competition in higher value niche markets. Moreover, the combination of heavy capital spending and weak profitability has weighed on the company's balance sheet, creating the potential need to add further leverage to fund the HRPF and potentially requiring a leverage covenant extension/waiver. In our opinion, we expect the combination of volatile nickel prices and adverse structural shifts within the domestic stainless steel market as Outokumpu's state-of-the-art mill comes online will help move the market view toward our thesis that ATI's near- to medium-term prospects face headwinds unrelated to longer term cyclical trends in key end markets.” Allegheny Technologies closed on Wednesday at $26.91.