Universal Stainless & Alloy Products Ignored On The Runway As Business Starts To Take Off

The last six months or so have been increasingly frustrating as an observer and analyst of Universal Stainless & Alloy Products (NASDAQ:USAP) (“Universal Stainless”). Other providers of alloys and specialty materials to the aerospace industry have seen their share prices outperform Universal Stainless, ATI (ATI) in particular, but Universal Stainless has been frustratingly weak since my last update despite improving orders, pricing, and margins.

Given aircraft production schedules and guidance from major OEMs like Airbus (OTCPK:EADSY) and Boeing (BA), I believe USAP is about to see a significant ramp in revenue and expansion in margins. On top of that, the company is poised to benefit from recovering oil/gas activity, as well as efforts to upgrade the product portfolio (including participating in “hot side” engine components). Even at a significant multiple discount to ATI or Carpenter (CRS), I see upside into the low-to-mid teens as USAP delivers on the growing demand from aerospace customers.

Readers should note that USAP is very small (less than $100M in market cap), fairly illiquid (fewer than 20K shares traded per day, on average), and not followed by Wall Street analysts. Consequently, it’s fair to assume that this is a riskier stock.

 

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Universal Stainless & Alloy Products Ignored On The Runway As Business Starts To Take Off