JPMorgan Upgrades Arconic After Last Week's Sell-Off

Although Arconic Inc’s ARNC shares came under significant pressure last week, due to recession concerns, management’s plan to split the company into Arconic (Rolled Products) and Howmet (Forgings) could unlock shareholder value, according to JPMorgan.

The Analyst

JPMorgan’s Seth Seifman upgraded Arconic from Neutral to Overweight keeping the price target at $30.

The Thesis

Milestones in the company’s planned split could be key catalysts, especially the chosen leadership and the capital structure of both the businesses, Seifman said in the note.

He added that Arconic seems to be headed “toward a viable steady state as two companies and with dependable execution, each should see more investor attention.”

Given Arconic’s exposure to the auto, commercial transport, construction and general industrial end markets, the company would suffer in a recession, the analyst noted. He added, however, that aero exposure should support Howmet, while shortages in the auto sector, due to common alloy tariffs, limits downside at the Rolled Products business.

Although exposure to commercial transport could be a source of concern, this segment contributes less than 20% of Howmet’s sales, Seifman said. He further noted that a low double-digit decline in sales would impact Howmet’s EBITDA by only around 3% and that “sales to support the existing truck fleet mitigate the impact of new builds.”

Price Action

Shares of Arconic had risen a little over 169% to $24.88 at the time of publishing on Monday.

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