Please ensure Javascript is enabled for purposes of website accessibility

Why Shares of Allegheny Technologies Fell Today

By Lou Whiteman - Updated Mar 11, 2020 at 5:10PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Could the coronavirus lead to a decline in new plane sales?

What happened

Shares of Allegheny Technologies (ATI 1.62%) fell 15% on Wednesday due to growing concerns about future demand for new airplanes. The COVID-19 coronavirus is creating havoc with airlines, and could cause Boeing and Airbus orders to be delayed or canceled.

So what

Allegheny, a specialty metals producer focused on aerospace and defense applications, has been under careful scrutiny for a year now due to the company's exposure to Boeing's troubled 737 MAX program. The company has managed through that downturn better than feared, but the aerospace componenst supplier faces fresh challenges ahead.

An airframe on the assembly line.

Image source: Getty Images.

Airlines have been responding to a coronavirus-fueled drop in travel demand by cutting flights and grounding planes, and some have indicated that if demand does not rebound quickly they could defer deliveries of airplanes on order. Boeing on Wednesday said Air Canada had canceled orders for 11 MAX aircraft, while other customers converted their orders to other planes. Overall, Boeing had more cancellations than orders in February.

None of that is good news for component suppliers like Allegheny. Even if travel demand does rebound, it is becoming more likely that airlines will remain conservative for some time and Boeing might never hit its goal of producing 57 737 MAX airframes per month. If Boeing doesn't get to that level, it will decrease the program's overall profitability both for Boeing and its supply chain.

Now what

Shares of Allegheny Technologies are now down 44% for the year. The stock is affordable, trading at just six times earnings and 0.3 times sales. But it is also surrounded in uncertainty.

Allegheny is a well-run company, and as a shareholder I am not selling my shares. But with markets falling, there are a lot of stocks at attractive valuations that have a lot less risk right now. It's a dangerous time to buy in.

Lou Whiteman owns shares of Allegheny Technologies. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Allegheny Technologies Incorporated Stock Quote
Allegheny Technologies Incorporated
$31.29 (1.62%) $0.50

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/11/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.