Analysts Diverge On Arconic After It Shelves Sale Plans

Arconic Inc ARNC shares shed close to 16 percent Tuesday following its announcement it has dropped a potential sale, citing the lack of a proposal for a full company transaction.

The Analysts

Morgan Stanley analyst Rajeev Lalwani maintained an Equal-weight rating on Arconic with a $20 price target.

Tigress Financial's Ivan Feinseth recommends purchasing shares at their present levels. 

Morgan Stanley: We Prefer Peers With More Visibility

Arconic, which is the upstream business spun-off from the erstwhile Alcoa, instead intends to focus on operational improvements, potential initiatives and the sale of the Building and Construction Systems, or BCS, division, Morgan Stanley's Lalwani said in a Wednesday note.

The BCS business sale could fetch the company $1.5 billion to $2 billion alongside moderate asset dispositions, the analyst said. 

"Away from this, per a tepid market backdrop and more subdued market valuations, we believe notable asset sales are lower in probability." 

Morgan Stanley expects moderate portfolio rationalization going forward, with a focus on enhancing longer-term business prospects.

With the potential value in underlying assets offsetting a weak free cash flow yield, Lalwani said he remains neutral on the stock. 

"Looking ahead, a level of asset monetization is probable, but likely limited given an uncertain backdrop, in our view." 

Net-net, Morgan Stanley said it prefers peers with more visibility.

See also: 3 Reasons Alcoa Is No Longer The Curtain-Raising Event Of Earnings Season

Tigress Still Sees Significant Value

Tigress was hopeful of Arconic clinching a deal with Apollo Capital Mangement LLC APO for about $10 billion or $22 per share, Feinseth said.

With hopes of a sale evaporating, the analyst said he still sees significant value in the stock and expects it to at least recover to the low $20s as Arconic continues to benefit from strong aerospace demand along with industrial gas turbines and the commercial construction market for extruded aluminum.

Elliott Management, which has a 10.74-percent equity stake in Arconic, will likely continue to work with the company to maximize shareholder value, Feinseth said. 

The company also stands to benefit from strong demand from its biggest customer, Boeing Co BA, he said. 

"I believe near-term upside to the $22 range continues to exist and recommend purchase at current levels." 

Arconic shares were trading up 5.32 percent at $18 at the time of publication Wednesday. 

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