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Arconic (ARNC) - Get Free Report has barely had time to get its footing as an independent company, just a few months removed from a spin out of Alcoa (AA) - Get Free Report . But the company is under the gun to show improvement when it releases first-quarter earnings later this month, with Paul Singer's Elliott Management looking over management's shoulder.

Elliott in November raised its stake from 7.5% to 9%, and in December took its percentage to 11.1%. The firm in a 13D filed December 8 disclosing the increased stake said that it believes shares of Arconic are "dramatically undervalued," pledging to engage in discussions with the company "regarding opportunities to improve operating performance and enhance shareholder value."

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The firm declined to comment, but people familiar with the situation say that Elliott managers are still talking with Arconic about how to improve margins.

But it can be dangerous to focus solely on margins at the expense of growth, especially in businesses like aerospace where customers like Boeing (BA) - Get Free Report and Airbus have been placing pressure on suppliers to bring down component costs. Arconic CEO Klaus Kleinfeld during Alcoa's second quarter 2016 conference call said "it's better to be on a platform than not to be on a platform."

The hope is that over time, and with a larger base of business, the company can improve margins by bringing down costs and improving productivity.

Because of those issues Alcoa warned that the downstream business now known as Arconic would finish 2016 with sales below what had been previously forecast, and said 2017 guidance could come down due to a market that is "more dynamic than what we had expected."

Kleinfeld, like Elliott, is bullish on Arconic's future, believing the company will over time benefit from what he calls the "aluminization" of the auto business as manufacturers seek to rely more heavily on the lightweight metal to meet increasingly difficult fuel economy guidelines.

Seemingly most of the other levers activists try to pull with target companies are poor fits for now. Arconic is heavily indebted, taking on all of Alcoa's $9 billion in debt and $3 billion of the combined $5.6 billion in pension obligations as part of the split, and appears more focused on balance sheet repair than it is a special dividend or other substantial cash return to investors.

And while the future for aluminum does appear bright, an aerospace banker said that at this point deep in the aerospace and automotive cycles it seems unlikely that Arconic would be able to attract a high-multiple offer.

"The best option is to make the business work, sooner rather than later," the banker said.

The question for investors might end up being whether Kleinfeld, the architect of a rollup that built the businesses now known as Arconic, is the right person to guide it into the future. Elliott's answer to that question might depend on how the next few quarters go.

Updated Jan. 22, 2017.

At the time of publication, Action Alerts PLUS was long ARNC.