Global Air Travel And Decarbonization Will Drive Long-Term Aerospace Demand

Key Takeaways

• Robust demand for ATI’s specialty alloys is driven by global air travel growth, decarbonization needs, and increasing reliance from major aerospace customers.
  
• Strategic investments in capacity, exclusive contracts, and supply chain localization strengthen ATI’s market position, supporting recurring high-margin sales and sustained earnings growth.
  
• ATI faces risks from shifts to alternative materials, regulatory compliance costs, aerospace customer concentration, heavy capital needs, and global trade uncertainties impacting margins and growth.

Catalysts

Produces and sells specialty materials and complex components worldwide.

• Demand for ATI’s specialty alloys is set to benefit from the ongoing global expansion in commercial air travel and the rising middle class, fueling robust multi-year growth in both new-build aircraft and high-frequency MRO applications; ATI’s backlog of long-term, sole-source engine materials contracts with all three major OEMs extends well into the 2030s and beyond, supporting visibility and durability of revenue growth.
  
• The decarbonization drive across aviation and other industries, with airlines and manufacturers seeking lighter and more fuel-efficient planes, translates directly into heightened long-term demand for ATI's advanced titanium and nickel alloys, supporting higher average selling prices and increasing net margins due to their differentiated, high-value product mix.
  
• Ongoing heavy investment in capacity expansion and process debottlenecking—both upstream in melt assets and downstream in finishing and inspection—enables ATI to capture increasing volumes as aerospace production rates climb, unlocking further operating leverage and contributing to sustained earnings acceleration over the next several years.
  
• Renewed and expanded multi-year contracts with top aerospace and defense customers, such as the recently announced five-year, nearly $1 billion supply agreement with Airbus and sole-source positions for critical jet engine alloys, ensure high-margin, recurring sales and provide strong earnings growth visibility while minimizing risks from competitive displacement.
  
• The increased focus by Western OEMs on supply chain resilience and localization, in response to geopolitical tensions and tariff regimes, plays to ATI's strengths as a U.S.-based and highly reliable supplier, potentially boosting market share and pricing power and enhancing both near-term revenue growth and long-term free cash flow generation.

ATI Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on ATI compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming ATI's revenue will grow by 8.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 8.9% today to 12.8% in 3 years time.
• The bullish analysts expect earnings to reach $736.8 million (and earnings per share of $5.18) 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 bullish analyst cohort, the company would need to trade at a PE ratio of 33.2x on those 2028 earnings, up from 31.6x today. This future PE is lower than the current PE for the US Aerospace & Defense industry at 35.3x.
• 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 7.33%, as per the Simply Wall St company report.

ATI Future Earnings Per Share Growth

Risks

• The rapid advancement of alternative materials and materials science may lead to increased adoption of composites or substitutes for specialty metals, which could reduce long-term demand for ATI’s core aerospace alloys and negatively affect revenue growth.
  
• Greater pressure from decarbonization and sustainability initiatives can result in higher regulatory costs and customer requirements for environmentally friendly sourcing, potentially increasing compliance expenses and compressing ATI’s net margins over time.
  
• ATI’s continued heavy reliance on a concentrated base of aerospace customers, with large multi-year contracts and sole-source positions, creates exposure to significant revenue volatility if any key OEM reduces production rates, shifts to alternative suppliers, or if the aerospace cycle weakens.
  
• High levels of capital investment and continuous reinvestment necessary for technological upgrades and capacity expansion may constrain ATI’s free cash flow generation and limit investment flexibility, which could pressure future earnings and shareholder returns especially if end market growth underperforms expectations.
  
• Heightened global trade tensions, rising protectionism, and ongoing tariff uncertainty have the potential to disrupt supply chains, increase raw material price volatility, and impair ATI’s ability to serve international customers efficiently, which could impact both revenue and net margins if mitigation tools become less effective or demand weakens in the face of higher costs.

Valuation

• The assumed bullish price target for ATI is $115.0, which is the highest 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 bullish 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 bullish analysts, you'd need to believe that by 2028, revenues will be $5.7 billion, earnings will come to $736.8 million, and it would be trading on a PE ratio of 33.2x, assuming you use a discount rate of 7.3%.
• Given the current share price of $89.31, the bullish analyst price target of $115.0 is 22.3% higher.
• 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.