Why ATI's ROCE Growth and Strategic Reinvention Make It a High-Conviction Buy for 2025

In the world of value creation, few metrics speak louder than Return on Capital Employed (ROCE). For investors seeking compounding machines—companies that consistently reinvest capital to generate outsized returns—ATI Inc. (NYSE: ATI) stands out as a compelling case study. With a ROCE of 15% as of June 2025 (up 184% over five years) and a net income growth rate of 57% during the same period, ATI has demonstrated a rare ability to leverage capital and demand tailwinds in aerospace and defense to deliver exceptional shareholder returns.

The ROCE Story: A Compounding Engine

ATI's ROCE of 15% far exceeds the 9.6% industry average for aerospace and defense, a testament to its disciplined capital allocation. What's even more impressive is how this metric has evolved: despite flat capital employed, ROCE has surged by 184% over five years. This means ATI has improved operational efficiency without requiring additional investment—a hallmark of a compounding machine.

The math is simple but powerful. By generating higher returns from the same capital base, ATI has compounded its value creation. Over the past five years, the stock has delivered a 752% total return, outpacing even the most aggressive growth sectors. This performance is underpinned by a strategic focus on high-margin aerospace and defense markets, where demand for commercial jet engines has grown 27% year-over-year in Q2 2025 alone.

Aerospace Demand: A Tailwind That Won't Fade

The aerospace and defense sector is ATI's lifeblood, accounting for 67% of Q2 2025 sales. With global airlines ramping up production to meet post-pandemic demand and defense budgets expanding in response to geopolitical tensions, ATI is uniquely positioned to benefit. Its High Performance Materials & Components (HPMC) segment, which supplies nickel-based alloys and precision forgings for jet engines, saw a 26% year-over-year sales increase in Q2.

This isn't just cyclical growth—it's structural. Long-term contract extensions with major airframe companies and a 4% year-over-year sales increase to $1.14 billion in Q2 2025 underscore the durability of demand. As production rates for commercial jet engines accelerate, ATI's role as a critical supplier of advanced materials becomes even more valuable.

Strategic Reinvestment: Fueling the Future

ATI's reinvestment strategy is a masterclass in balancing growth and efficiency. In Q2 2025, the company spent $72 million on capital expenditures, with full-year guidance of $260–280 million. These investments are directed toward expanding capacity for aerospace components, upgrading automation, and enhancing supply chain reliability.

Equally important is ATI's commitment to returning capital to shareholders. In Q2 2025, it repurchased $250 million of stock, reducing its share count by 3.2 million shares. This dual approach—reinvesting in growth while tightening the ownership base—creates a flywheel effect. Higher margins from operational efficiency and pricing power in aerospace are funneled into both reinvestment and buybacks, compounding returns for shareholders.

The Risks and the Road Ahead

No investment is without risks. ATI's debt-to-equity ratio of 1.81 is elevated, and its reliance on aerospace demand exposes it to macroeconomic volatility. However, the company's strong free cash flow generation ($270–350 million projected for 2025) and disciplined leverage management mitigate these concerns.

Looking ahead, ATI's guidance for full-year 2025 adjusted EBITDA of $810–840 million and adjusted earnings per share of $2.90–$3.07 suggests confidence in its trajectory. With long-term contracts in place and a clear line of sight to higher production volumes, the company is well-positioned to sustain its ROCE growth and expand margins.

Investment Thesis

For investors seeking a high-conviction buy in 2025, ATI offers a rare combination of:
1. Compounding capital efficiency: ROCE growth without additional capital employed.
2. Structural demand tailwinds: Aerospace and defense markets with multi-year growth potential.
3. Disciplined reinvestment: A balance of operational upgrades and shareholder returns.

ATI's ability to transform capital into outsized returns—while navigating a complex industrial landscape—makes it a standout in the aerospace sector. As the company continues to reinvent itself through innovation and strategic execution, it's not just a stock to watch—it's a stock to own.