Sunday, June 2, 2019

Universal Stainless & Alloy Products Badly Needs To Regain Momentum With Its Premium Alloy Offerings

Despite strong demand growth in end markets like aerospace and oil/gas, specialty alloy producers like Universal Stainless & Alloy Products (USAP) have underperformed the S&P 500 by a wide margin. USAP has been particularly weak, with the stock down more than 45% over the past year versus roughly 20% to 25% declines for Allegheny (ATI), Carpenter Technology (CRS), and Haynes (HAYN), as USAP's progress in boosting its premium mix has stalled out, tool steel demand has shrunk significantly, and margins have underwhelmed on disappointing volumes and price/cost mismatches.

I'm less bullish on USAP reaching/surpassing past gross and operating margin peaks than I was almost a year ago, but USAP's facilities (and particularly its more highly value-added North Jackson facility) are still significantly under-utilized, the backlog continues to grow, and there are still opportunities for USAP to leverage this strong commercial aerospace cycle. On the flip side, USAP has struggled to consistently boost its premium product mix, and the company's competitive positioning compared to Allegheny or Carpenter is less impressive.

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Universal Stainless & Alloy Products Badly Needs To Regain Momentum With Its Premium Alloy Offerings

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