Additive Manufacturing And Composite Substitutes Will Disrupt Future Prospects

Key Takeaways

• Advanced substitutes and shifting manufacturing methods threaten demand for ATI’s traditional products, pressuring the company to increase R&D just to remain relevant.
  
• Rising global competition and supply chain localization are set to squeeze ATI’s margins and limit its market reach, weakening long-term profitability.
  
• Strong demand in aerospace, high-margin proprietary products, expanding contracts, and operational investments are driving ATI’s sustained revenue growth and margin improvement.

Catalysts

Produces and sells specialty materials and complex components worldwide.

• Growing adoption of advanced substitutes such as composites, ceramics, and nano-engineered materials in aerospace and defense threatens to slowly erode long-term demand for ATI’s specialty alloys and titanium products, requiring costly and sustained R&D just to maintain relevance and pressuring both top-line revenue growth and margins over time.
  
• Increased onshoring and supply chain localization efforts in Asia and Europe may sharply limit ATI’s global volume growth, particularly as U.S.-based producers lose export competitiveness, resulting in a more limited addressable market and less favorable revenue mix.
  
• Persistent high capital intensity and the ongoing need for expensive investment in modernization and compliance with stricter future materials standards are likely to constrain free cash flow and depress net margins, even as topline sales grow.
  
• The accelerating shift toward additive manufacturing (3D printing) using alternative feedstocks or requiring different alloy characteristics poses the risk that ATI’s traditional specialty metal products will see reduced demand in next-generation platforms, undermining the company’s long-term earnings power.
  
• Heightened competition from international specialty materials firms, especially those with significant government support or lower input costs, is set to drive margin compression and price erosion for ATI, resulting in a structurally weaker long-term profitability profile.

ATI Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on ATI compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming ATI's revenue will grow by 4.3% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 8.9% today to 12.1% in 3 years time.
• The bearish analysts expect earnings to reach $611.1 million (and earnings per share of $4.52) by about July 2028, up from $398.7 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 25.4x on those 2028 earnings, down from 31.8x today. This future PE is lower than the current PE for the US Aerospace & Defense industry at 34.2x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.36%, as per the Simply Wall St company report.

ATI Future Earnings Per Share Growth

Risks

• Persistent, robust growth in aerospace and defense demand, underpinned by long-term sole-source contracts into the 2030s and 2040s for high-margin proprietary alloys and titanium products, supports strong revenue visibility and earnings stability.
  
• ATI’s successful shift toward high-value, differentiated products with significant pricing power is driving sustained gross and net margin expansion, as reflected in recent price increases and long-duration customer agreements.
  
• Substantial and growing order backlog, highly visible ramp-up cycles with global engine and airframe OEMs, and large new contracts such as the five-year $1 billion Airbus titanium supply deal reinforce ongoing top-line and margin momentum.
  
• Consistent investments in advanced manufacturing capacity, debottlenecking, and operational efficiencies—often with customer co-investment—are translating into higher output, improved asset utilization, and scalable, profitable growth, which should bolster both future revenues and net earnings.
  
• The accelerating demand for MRO (maintenance, repair, and overhaul) and aftermarket aerospace applications, combined with secular trends of fleet renewal and expansion, ensures ATI’s core products remain in high demand, supporting revenues and profitability well into the next decade.

Valuation

• The assumed bearish price target for ATI is $73.0, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of ATI's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $115.0, and the most bearish reporting a price target of just $73.0.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be $5.1 billion, earnings will come to $611.1 million, and it would be trading on a PE ratio of 25.4x, assuming you use a discount rate of 7.4%.
• Given the current share price of $89.8, the bearish analyst price target of $73.0 is 23.0% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.