Stock Insight

GTI - GrafTech International Ltd. (NYSE) Company website:
http://www.graftech.com

Closed at $6.32, up .13, on Friday. Below is a description of what they do from Yahoo!:

GrafTech International, Ltd. manufactures natural and synthetic graphite and carbon products worldwide. The company offers graphite products that enable thermal management solutions for the electronics industry and fuel cell solutions for the transportation and power generation industries. It operates in two segments, Synthetic Graphite and Natural Graphite. The Synthetic Graphite segment manufactures and delivers graphite electrodes, cathodes, and graphite materials, as well as related technical services. This segment’s electrodes and cathodes are used to produce steel, aluminum, and other nonferrous metals; and graphite materials include primary and specialty products for transportation, semiconductor, and other markets. The Natural Graphite segment manufactures products for proton exchange membrane (PEM) fuel cells and fuel cell systems for use in the power generation and transportation markets. Its products include engineered thermal interface products, heat spreaders, and heat sinks, as well as gasket and sealing material. The company also conducts research and development relating to synthetic and natural graphite products. It sells its products through independent agents and distributors, as well as through direct sales force. The company has strategic alliances with ConocoPhillips (U.K.) Limited to develop the supply chain for its primary raw material; Ballard Power Systems, Inc. for PEM fuel cells; and Alcan/Pechiney in the cathode business. GrafTech was founded in 1886 and is headquartered in Parma, Ohio.

Well, if you were worried that this was a fly by night operation, you can put those worries aside, as the company was founded in 1886. Not that we have ever worried about that before, but I wanted to point out that date, since this is the oldest company I have ever profiled. This company obviously made the transformation from just a steel and aluminum producer, to a more modern company concentrating on graphite products that enable thermal management solutions for the electronics industry and fuel cell solutions for the transportation and power generation industries. The latter is on the cutting edge of technology today. The company has even received a grant from the DOE for its efforts in that area. See link below:

DOE Awards $100M in Fuel Cell Grants

Additionally, the company has strategic alliances with ConocoPhillips and Ballard Power Systems in regards to that technology.

The company has substantial revenues, as they almost had a billion dollars in sales over the last 4 quarters. The last quarterly report showed an increase in sales year over year, but not quarter over quarter (only a slight decline though). Income increased year over year (if you exclude one time charges/credits), and quarter over quarter. See link to financials (does not include the latest quarter), and the most recent earnings announcement below:

Financials

GrafTech Reports Third Quarter 2006 Results

The company seemed to have a favorable outlook for the fourth quarter, as outlined by the company below:

While some regions are currently showing lower steel production levels, overall the global steel industry economic conditions continue to be favorable. Electric Arc Furnace (EAF) steel is on track to finish 2006 up about 3% from 2005. Mr. Shular commented on the outlook, stating, “We expect a solid shipment level in the fourth quarter, as customers fulfill their contractual obligations, with annual estimated graphite electrode volume of 210,000 metric tons, in line with prior guidance.” GrafTech expects free cash flow before antitrust and restructuring to continue to improve in the fourth quarter, exceeding prior guidance, with our current estimate of $50 to $60 million for the full year, which is an $80 to $90 million improvement over 2005. This year’s free cash flow performance, together with the expected closing of the sale of our 70 percent interest in the cathode business should allow us to complete the year with net debt below $525 million.

That leads me to believe that the company will increase profits again in the fourth quarter.

One event that may affect the company is the possible sale of its 70% ownership in Carbone Savoie, a French cathode company. Revenues from that venture amounted to $114 million in 2005, and the potential buyer (Alcan) is looking to pay $130 to $140 million for GTI’s stake. When that news was announced, it did not have much affect on the stock price though. That may be because investor’s are waiting for a deal to be consummated before making a decision. See link to PR below:

GrafTech in Talks to Divest Cathode Business in France

As for the technical picture, things look very good, in my opinion. The stock has been making a steady rise since late August. It cleared its 20 day EMA and 50 DMA in early September, and then the 200 DMA in late September. After accomplishing the latter, it fell back below the 20 and 200 day, but held the 50. By mid October it had cleared them all again, however, on October 30th the company got some bad news that a competitor had won a Boeing contract that they were competing for. The stock fell from $6.18 to $5.52 on that news. See below:

SGL gets Boeing order, confirms Q4 sales forecast

What happened after that drop, was very impressive, as the stock rebounded back up to $6.01 the day after that low. This cleared all of the moving averages again on a closing basis, which is very bullish. Earnings came out a couple of days later, which initially caused a big drop in price, however, the stock rebounded by the close, and still finished above all of the moving averages. See current chart below:

Looking at the chart, you can see that the stock rallied the day after earnings, and broke through resistance at $6.30. Additionally, you can see that the MACD made the bullish crossover the day after that surge. That indicator looks very favorable now, as does the RSI, which is heading higher and over 50. It still has room to go before hitting the overbought level (70). The stock also made a Golden Cross recently. For Monday, I am hoping we will see a pullback to the $6.25 to $6.30 support area to give us a good entry. As you can see, I am not expecting too much of a dip. Once the stock resumes the uptrend, I would look for resistance at $6.47 initially, then $6.62. If the stock were to pullback below the $6.25-.30 support area, we would not want to see it fall below $6.06 (20 day EMA).

Stock Insight, November 11, 2006

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