Arconic Inc. is a company that I’ve been following and am invested in since Oct 2020. It spun off of Howmet in Apr 2020 and is a manufacturer of aluminum sheet rolled products used in ground transportation, industrial packaging, and building construction.
The stock languished since November 2020 and still trades at a relatively sizable discount to peers. However, Q1/21 released today proved to be a positive catalyst for the stock as the company reported better than expected results and upward revision in guidance.
At the core of this present inflection point are a few new development that took place in Q1/21.
First, the company’s secured long term can North America packaging contracts worth $1.5 billion in revenue from 2022 to 2024. This is a highly positive and important development as one the most important growth prospects as noted in 2020 was ARNC’s expanding into the North American can packaging market. Following certain non-compete expiration in Oct 2020, ARNC was allowed to seek can packaging contracts in North American – a market where the projected future short fall in supply of can packaging presents significant opportunity for ARNC’s growth. Coinciding with this opening of a new market, ARNC previously in 2020 completed constructions of a packaging facility capable of adding another 600 million lbs. of rolled sheeting production… The present $1.5 billion contracts secured in North American can packaging is highly positive and will elevate ARNC’s EBITDA growth trajectory and utilize 300+ million lbs of the company’s newly added production capability.
Second, ARNC also secured another $2 billion contracts in Aerospace segment, which seems to be finding a bottom.
Lastly, though not noted in the earnings, I believe the ground transportation segment may see further upside possibility as the world supply-chain recovers from the semi-conductors chip shortage that has mostly affected the automotive sector. Taiwan Semiconductor Manufacturing Company (TSM), recently brought about the good news that supply is catching up to demand in automotive chip shortage that may last another 7 – 8 months… If this is reliable outlook, then Automotive may see further heading into the later half of the year… Though this would probably mean headwind for Q2…(as ARNC noted on the call). the longer-term outlook for automotive is quite robust…
The company trades at $3.58 billion in equity market cap while TTM free cash flow is $400 million and the company is growing at low to mid single digits… should be worth more…
