Haynes International (HAYN)

Haynes International develops, markets, and manufactures specialty alloys for aerospace, chemical processing, gas turbines, power generation, incineration, industrial heating, hazardous waste, ect. These alloys are manufactured in several forms: sheet, coil, plate, forgings, fasteners, bar, wire, billet, tube, as well as value-added custom cuts and forms.

The Companies customers are very diverse including GE, Rolls Royce, Boeing, DuPont, Dow, Eli Lilly, BP, and many more. The manufacturing occurs in the US (Ind., La., NC.) with 6 US Sale/Service centers and 7 international (Eng., Fra., Italy, Switz., India, China).

As of the last conference call, the company was operating at +100% operating capacity for flat alloy products (accounting for 70% of profits). The Company claims to have "big demand for value-added service" and is "moving up the value chain" in their niche markets. Moving into this model can grown the companies moat and competitive advantage. By continuing R&D, becoming critical partners with their customers, and increasing value-added products the Company can protect their weak moat.

The valuation for this company is attractive on traditional metrics.
Market Cap: $520
P/E: 7.5
ROE: 28.26
D/E: 0.12
Net Margins: 11.81%
Yield: 0%
EPS: $5.88
BV/Share: 26$

The stock is down nearly 50% in the past three months (in the bottom 10% of the market). This scary drop opens up an opportunity for long-term investors. Here are several return scenarios using a discounted EPS valuation. The models conservatively estimate EPS at $5 with a 10% discount rate:

Scenario 1: 2% growth in perpetuity = $63
Scenario 2: 6% growth for 4 yrs. followed by 2% in perpetuity = $73
Scenario 3: 10% growth for 5 yrs. followed by 2% in perpetuity = $88
*This model assumes no further dilution.

Notes:
As a small company, HAYN is always subject to take over speculation. They pose a nice value to the massive multinational steel companies.
The price of nickel (needed for nickel-alloys) is driven by the stainless steel markets.
Third Avenue Value is a holder of the company.
The Company is a provider to Boeing but hes very low exposure to the 787 Dreamliner.
The company has a decently sized short interest.