With shares of Arconic Inc ARNC trading close to 52-week lows, Longbow Research turned bullish again on the stock and sector after "positive feedback" from an aerospace supplier survey.
The Analyst
Longbow Research's Chris Olin upgraded Arconic from Neutral to Buy with a new $24 price target.
The Thesis
Three takeaways from Longbow Research's survey of tier-three and tier-four aerospace suppliers support the bullish case for Arconic and the specialty materials group as a whole, Olin said in a Thursday upgrade note. (See his track record here.)
Respondents showed an acceleration in top-line growth from 13-15 percent in the third quarter to 15-18 percent in the fourth quarter. This was due to increased sourcing from jet engine manufacturers and a favorable shift toward next-generation platforms, the analyst said.
Several of the smaller forging respondents indicated they are facing constrained production capacity, Olin said. This trend is likely to "protect" Arconic's aerospace and defense market share at a time when management is addressing its forge press outages, he said.
Lower aluminum prices could help Arconic's margin performance in all three of business segments, Olin said. This would mark a reversal from 2018, when raw material input prices had a negative EPS impact of 14 cents per share.
Aside from the survey results, Arconic's stock likely has downside protection of around $17 per share due to continued M&A speculation, the analyst said.
The company could be attractive to both a private equity buyer and a large commercial aerospace or jet engine maker looking to better control its flow of materials, in Longbow's view.
Price Action
Arconic shares were down 1.37 percent at $17.65 at the time of publication Thursday.
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