S&P sees strength in Titanium Metals

This stock is the purest play in titanium, a metal prized for its strength and light weight.

By TheStockAdvisors Mar 9, 2012 3:39PM
By Matt Morrow, Standard & Poor's The Outlook

Titanium has been in strong demand lately, which bodes well for publicly traded players such as Titanium Metals (TIE) according to S&P Capital IQ.

One of the strongest readily available metals by weight, titanium also has excellent corrosion resistance. It is used by the commercial aerospace industry both in jet engine components and in air frame components. In addition, titanium is used in ground combat vehicles as well as in naval vessels.

Titanium-based alloys are also in armor plating, structural components, chemical plants, power plants, desalination plants, and pollution control equipment.

“Titanium’s corrosion resistance and light weight makes it desirable for use in commercial and military aerospace applications,” says Leo Larkin, metals equity analyst for S&P Capital IQ.

Titanium Metals is one of the world’s largest producers of milled and melted titanium products, and the largest U.S. producer of titanium sponge (the raw material for titanium).

The company’s main customers for titanium products in commercial aerospace are Boeing and Airbus, as well as manufacturers of large civil aircraft engines including Rolls- Royce, General Electric Aircraft Engines, Pratt & Whitney, and Snecma.

According to Titanium Metals, commercial aerospace is the fastest growing market for titanium — in jet engine components and airframe structures. The growth is driven by the demand for air travel in developing countries in Asia-Pacific and the Middle East.

Next-generation commercial aircraft (such as the Boeing 787 and Airbus A350) use a significantly higher percentage of both titanium and carbon fiber reinforced composites to reduce weight and increase fuel efficiency.

Larkin views Titanium Metals as the beneficiary of an upturn in commercial aerospace production, growing acceptance of titanium in other industrial markets, and a rise in Asian demand for titanium.

He believes these favorable developments, combined with the company’s low debt levels, should enable Titanium Metals to capitalize on a cyclical upturn in titanium demand.

Larkin does caution that while the aerospace market looks like it is in a very strong cyclical uptrend, delays in certain projects could have negative short-term implications for companies in that market.

Titanium Metals is S&P Capital IQ’s only buy-ranked titanium producer. “Although other companies are involved in the production of titanium, Titanium Metals is the purest play for investors interested in this metal,” says Larkin.

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