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Alcoa (AA)
Alcoa Still a Buy After Earnings Results?
Nearly every stock out there on the market is being pummeled by this global economic downturn that we are all experiencing. Stocks in nearly every sector and industry have been on a decline. Alcoa, in the metals and mining sector but specifically in the aluminum business, saw their stock go down during after hours trading due to their poor earnings results. What were their results exactly and what should we expect to happen to the company's stock going forward?
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To start off, their profits this past quarter totaled $268 million. This is compared to their last year's earnings of $555 million, so you can see that was a pretty significant decrease in profits - something near 52%. This equated to 33 cents a share this year, or about 66 cents per share last year. It should be noted however that a chunk of the $555 million last year was due to an asset sale that helped to boost Alcoa's profits. Their revenues came in at $7.23 billion this year compared to $7.39 billion last year. Analysts at FactSet Research expected profits of 54 cents per share on revenues of $7.27 billion. Other analysts at Desjardins Securities found that these results were "disappointing" but kept Alcoa at a buy rating. The Desjardins Securities analysts also adjusted their earnings forecast for Alcoa from $3 per share to $1.96 per share.
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Alcoa blamed the results on lower demand for aluminum products overall. The auto industry's decline in sales is a strong point, but the airplane industry as well as demand from Boeing (BA: Charts, News, Offers) has declined too. Boeing too is dealing with their own battles as a machinists' strike continues to affect demand for aluminum. In order to cope with the current economy, Alcoa will stop all non-critical capital projects, make reductions and adjust manufacturing capacity capacities in order to meet demands. Not only that, Alcoa is stopping its shares buy-back program.
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So it seems that shares of Alcoa have continued to drop as it was trading for $14.80 at the time that this was written at 10:10am. This is in spite of the fact that investors were optimistic about the rate cuts made worldwide that are intended to make an eminent global recession go away. If this optimism continues, perhaps Alcoa's stock can regain some lost ground. It might even be enough to spur some more demand for their products but from the looks of things, this may not be enough to affect Alcoa's annual earnings as positively as one would hope. Furthermore, the decrease in demand has had a similar decrease in aluminum prices making the company's revenues more susceptible to a decline. Still, Alcoa was able to turn a profit in a time when most others are not able to. They are also in the business of being a supplier of metals so it is not like they have to worry too much about obsolescence. At this point it is a judgment call for the investor on whether or not they will find value in going long on Alcoa.
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Click here to view a detailed profile of Alcoa.
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