What happened

Shares of specialty materials manufacturer Allegheny Technologies Incorporated (NYSE:ATI) continued the rally that began in mid-May by surging over 13% last month. Fresh off promising second-quarter 2017 results announced in the final week of July, the stock found another catalyst in the form of a bullish analyst.

Chris Olin at Longbow raised his 2018 earnings-per-share estimate slightly and reiterated a buy rating and $24-per-share price target for Allegheny Technologies. That represented a nearly 29% premium to the closing price on Aug. 21, the day of the analyst's note to investors, which sent shares markedly higher the following day. What supports the analyst's optimism?

A jet engine being inspected on the tarmac.

Image source: Getty Images.

So what

Allegheny Technologies has been in the midst of a turnaround strategy that includes moves to bolster the company's pension commitments, focus on high-growth products, and improve operating margins by weeding out unnecessary costs. Management has executed the strategy almost to the letter.

For instance, the fastest-growing area of the business continues to be the high-performance materials and component segment, followed by forged products -- both areas that have received the highest levels of investment in recent years. Meanwhile, total cost of sales dropped while revenue grew 11% in the first half of 2017 compared to the year-ago period. 

ATI Chart

ATI data by YCharts.

Olin only increased his 2018 EPS estimate by $0.04 to $1.40, but the updated note to investors signals increasing confidence in management's strategy and the growth prospects of Allegheny Technologies. A recently announced metal 3D printing joint venture with GE Aviation and strong performance in aerospace applications certainly help stoke the flames of confidence. However, investors should consider that an estimated $1.40 per share in earnings next year is significantly higher than what will be achieved in 2017.

Now what

Allegheny Technologies is quite a bit different today than it was just three years ago -- and for the better. Nonetheless, the company has a long way to go before returning to historical levels of revenue, profitability, and share price. It will take time for the company to continue growing earnings and margins. If it comes close to the $1.40 EPS mark next year, however, all bets may be off.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.