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Coverage Initiation: Haynes International
Value Line has initiated coverage of Haynes International (HAYN) in its flagship product, The Value Line Investment Survey. Haynes is one of the world's largest producers of high-performance nickel- and cobalt-based alloys in sheet, coil, and plate forms. The company is focused on developing, manufacturing, marketing, and distributing technologically advanced, high-performance alloys, which are sold primarily in the aerospace, chemical processing, and land-based gas turbine industries. Its products consist of high-temperature resistant alloys, or HTA items, and corrosion-resistant alloys, or CRA applications. The former are used by manufacturers of equipment that is subjected to extremely high temperatures, such as jet engines for the aerospace market, gas turbine engines used for power generation and waste incineration, and industrial heating equipment. The latter solutions are used in applications that require resistance to very corrosive media found in chemical processing, power plant emissions control, and hazardous waste treatment. In addition, Haynes also manufactures its products as seamless and welded tubulars, and in slab, bar, billet and wire forms.
The company has manufacturing facilities in Kokomo, Indiana; Arcadia, Louisiana; and Mountain Home, North Carolina. The Kokomo facility specializes in flat applications, the Arcadia facility specializes in tubular products, and the Mountain Home facility specializes in wire goods. Haynes’ units are sold primarily through its direct sales organization, which includes service/sales centers in the United States, Europe and Asia.
The high-performance alloy market is a highly competitive space in which eight to ten major producers participate in various product forms. Haynes' primary competitors in flat rolled products include Special Metals Corporation, a subsidiary of Precision Cast Parts Corp. (PCP), Allegheny Technologies Inc. (ATI), and Krupp VDM GmbH, a subsidiary of Thyssen Krupp Stainless. It faces strong opposition from domestic and foreign manufacturers of both high-performance alloys and other competing metals. The company may face additional competition in the future as new materials are developed, such as plastics or ceramics that may be substituted for its items. The metal fabricator also believes that it will face increased pressure from non-U.S. entities in the next five to ten years, especially from businesses located in Eastern Europe and Asia. Additionally, in recent years HAYN’s domestic business has benefited from a weak U.S. dollar, which makes the goods of foreign counterparts more expensive to import into the United States. In the event that the U.S. dollar strengthens, the company may encounter increased domestic competition.
Starting in the fourth quarter of fiscal 2007 and continuing through fiscal 2010 and, to a lesser degree, in fiscal 2011, Haynes experienced strong pricing pressure from competitors who produce both stainless steel and high-performance alloys, due primarily to weakness in the stainless market. Historically, the company experienced similar price competition in the 1990s and in the early 2000s, when demand in the stainless market waned. Stiff opposition has required the company to continually price its products efficiently, which has contributed to the reduction in its gross profit margin and net income. Although the economic environment has modestly improved, there continues to be significant uncertainty as to when the stainless market will return to the pre-recession levels. When stainless demand begins to improve, price competition in the high-performance alloy industry should begin to ease. Until then, HAYN continues to respond to the challenges by increasing its emphasis on service centers, offering value-added services, improving its cost structure, while striving to improve delivery-times and reliability.
Haynes International’s results have suffered of late, as fiscally conservative customers, plunging commodity prices, and global economic uncertainty have taken their toll on the top and bottom lines. These events, in turn, have caused the stock to remain range bound for some time, fluctuating between the mid-$40 to mid-$50 levels.
Nevertheless, the aerospace, land-based gas turbine, and chemical processing industries ought to benefit from a pickup in global expansion, which has been slower in recent years, but should gain steam three to five years hence. To that end, the company has invested heavily in its capacity and product quality segments.
All told, subscribers interested in this metal fabricator are advised to consult Value Line’s quarterly reports for Haynes International, as well as any supplemental reports and relevant articles as important news items arise.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.