Deutsche Bank Downgrades Allegheny Technologies, Outlook Now In Question

• Just a few weeks ago, Deutsche Bank upgraded its rating on Allegheny Technologies Incorporated ATI from Hold to Buy, while reducing the price target from $27 to $20.
• However, on Tuesday, the firm decided to downgrade the stock back to Hold, and trim once again its price target, to $15 this time.
• The analysts cited the company’s significant results miss in the third quarter and the guidance push as the main drivers of the demotion.

In a report issued Tuesday, analysts Jorge Beristain, Jeremy Kliewer and Chris Terry explained that Allegheny’s downgrade was based on its poor third quarter results and the guidance push. “The company clearly faces a weaker-than-expected stainless steel pricing environment as demand in its Flat Rolled products missed sharply,” they noted.

Further, the experts questioned “when management will hit projected numbers as expected recoveries continue to be ‘pushed’ over the horizon in what is becoming an all-too-familiar pattern.”

In addition, Deutsche Bank lowered its volume and EBITDA/lb estimates following the third quarter results. Moreover, the analysts continued, investors might not see incipient recovery until the second half of 2016. “While management re-iterated the importance of keeping its dividend we question if this is realistic given mounting EBITDA misses and an unclear path to deleveraging high debt load going forward,” they explained.

To conclude, Bristain, Kliewer and Terry pointed out a few key up/downside risks, including metal prices, vicissitudes in supply/demand, operating costs and currency variations.

Shares of Allengheny fell almost 10 percent on Wednesday trading.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.