Allegheny Technologies Inc Valuation – September 2018 $ATI

Company Profile (excerpt from Reuters): Allegheny Technologies Incorporated (ATI), incorporated on August 26, 1999, is a manufacturer of specialty materials and complex components. The Company operates through two business segments: High Performance Materials & Components (HPMC), and Flat Rolled Products (FRP). The Company is engaged in manufacturing differentiated specialty alloys and forgings. ATI produces nickel-based alloys and superalloys, titanium and titanium-based alloys, specialty alloys, stainless steels, and zirconium and other related alloys in various mill product forms. Its capabilities range from alloy development, to melting and hot-working, through engineered finished components. It is also engaged in producing nickel-based alloy and titanium-based alloy powders for use in jet engine forgings and three-dimensional (3D)-printed products.


Downloadable PDF version of this valuation:

ModernGraham Valuation of ATI – September 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $3,426,092,997 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 2.87 Pass
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -273.09% Fail
6. Moderate PEmg Ratio PEmg < 20 -19.90 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.93 Fail
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 2.87 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 1.11 Fail
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Fail


Stage 2: Determination of Intrinsic Value

EPSmg -$1.36
MG Growth Estimate -4.25%
MG Value $0.00
Opinion Overvalued
MG Grade D
MG Value based on 3% Growth -$19.69
MG Value based on 0% Growth -$11.54
Market Implied Growth Rate -14.20%
Current Price $27.03
% of Intrinsic Value N/A

Allegheny Technologies Incorporated does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor has concerns regarding the level of debt relative to the net current assets, and the lack of earnings stability or growth over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after seeing its EPSmg (normalized earnings) decline from $0.97 in 2014 to an estimated $-1.36 for 2018. This level of negative earnings does not support a positive valuation.As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Allegheny Technologies Incorporated revealed the company was trading above its Graham Number of $22.24. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was -19.9, which was below the industry average of 68, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-8.4.

Allegheny Technologies Incorporated scores quite poorly in the ModernGraham grading system, with an overall grade of D.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) -$8.40
Graham Number $22.24
PEmg -19.90
Current Ratio 2.87
PB Ratio 1.93
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $2,126,300,000
Total Current Liabilities $741,300,000
Long-Term Debt $1,535,500,000
Total Assets $5,393,300,000
Intangible Assets $531,000,000
Total Liabilities $3,351,400,000
Shares Outstanding (Diluted Average) 145,800,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.59
Dec2017 -$0.83
Dec2016 -$5.97
Dec2015 -$3.53
Dec2014 -$0.03
Dec2013 $1.44
Dec2012 $1.43
Dec2011 $1.97
Dec2010 $0.72
Dec2009 $0.32
Dec2008 $5.67
Dec2007 $7.26
Dec2006 $5.61
Dec2005 $3.59
Dec2004 $0.22
Dec2003 -$3.89
Dec2002 -$0.82
Dec2001 -$0.31
Dec2000 $1.60
Dec1999 $3.13
Dec1998 $2.43

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate -$1.36
Dec2017 -$2.48
Dec2016 -$2.65
Dec2015 -$0.57
Dec2014 $0.97
Dec2013 $1.37
Dec2012 $1.57
Dec2011 $2.15
Dec2010 $2.80
Dec2009 $4.06
Dec2008 $5.44
Dec2007 $4.40
Dec2006 $2.30
Dec2005 $0.35
Dec2004 -$1.06
Dec2003 -$1.16
Dec2002 $0.54

Recommended Reading:

Other ModernGraham posts about the company

Allegheny Technologies Inc Valuation – March 2017 $ATI
Allegheny Technologies Inc. Valuation – November 2015 Update $ATI
26 Companies in the Spotlight This Week – 11/22/14
Allegheny Technologies Inc. Annual Valuation – 2014 $ATI
ModernGraham Valuation: Allegheny Technologies (ATI)

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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