Search

Alcoa (AA) Forecasts Stronger Growth in the Next Two Years

By: , dated January 15th, 2013

Last week, Alcoa (AA: Charts, News) posted its fourth quarter earnings, in line with EPS expectations and exceeding revenue estimates. Alcoa, the world’s third-largest aluminum producer, reported adjusted earnings of 6 cents per share on revenue of $5.9 billion. Analysts had expected 6 cents per share on revenue of $5.58 billion. Although the company’s growth appears minimal, its adjusted fourth quarter earnings are a vast improvement over loss of 18 cents per share, or $191 million, on revenue of $5.99 billion, it posted in the prior year quarter.

Daily Chart

Analysts are more interested in Alcoa’s outlook, which forecasts 7% demand growth in 2013, up from 6% growth in 2012. In 2012, sluggish growth in autos, construction, and packaging decreased the worldwide cost of aluminum. These sectors are all expected to pick up by next year. Alcoa is widely considered a market bellwether, since its earnings reflect the state of multiple domestic and international industries, and an accurate gauge of economic health.

Alcoa also sees strong growth potential in the aerospace industry, where aging aircraft have to be quickly replaced. During the quarter, Alcoa’s sales were boosted by a high number of aircraft-order backlogs at Boeing (BA: Charts, News) and Airbus.

Alcoa also achieved record profits in its aluminum-rolling and product-making businesses, also known as its downstream’ businesses. Its upstream’ business, which consists of its mining and refining operations, were hit by the decline in metals prices, but cost reductions helped keep them afloat. During the quarter, Alcoa cut total spending by 12% to $6.23 billion.

Alcoa’s average price received for aluminum decreased 2% from the prior year, but it increased nearly 5% from the prior quarter. The company’s shipment volume remained the same as the prior year. Due to these low aluminum prices, Credit rating company Moody’s MCO warned that it may downgrade Alcoa’s credit rating to “junk status” if it could not find new avenues of revenue growth.

Despite Moody’s warning, CEO Klaus Kleinfeld stated that the company was in a “strong position to maximize profitable growth” in 2013. Kleinfeld’s CEO, Charles D. McLane Jr., will also step down on April 1, handing the reins over to COO William F. Oplinger.

Alcoa’s critics also believe that its growth trajectory of Alcoa could be cut in half by a sudden rise in interest rates and the end of the Fed’s current round of quantitative easing. These rounds of easing are guaranteed to boost the cost of silver and gold as the U.S. dollar inevitably declines. A fresh round of debt ceiling debates will also hamper the growth of Alcoa and its dependent industries.

Shares of Alcoa trade at 10.4 times forward earnings with a PEG ratio of 1.49. The stock pays a quarterly dividend of 3 cents per share – 1.34% yield at current prices. Although the stock may look fundamentally healthy, it is down 8.8% over the past twelve months and down 72% over the past five years.

Alcoa may be a solid stock for portfolio diversification, but there are stronger metals – such as molybdenum, gold or silver, which may bounce back much faster. Investors might also benefit more from picking a stock from an industry that Alcoa provides for, such as General Motors (GM: Charts, News) or Boeing, instead of buying it directly. Last but not least, its dividend yield of 1.34% is too paltry for serious dividend investors. However, Alcoa could rally strongly on any strong macro signs that Asia or Europe are growing at a faster clip than expected, or a quick resolution to fiscal issues in the United States.

Other News About AA
AsiastocksgainafterAlcoaearnings
Alcoa’s gains signal stronger growth ahead in Asia.
Onmarkets, Alcoaearningsfailtosparkminingcompanies
Alcoa’s earnings failed to excite its industry peers.

Other Stocks in the News
SwatchtoBuyWatchandJewelryBusinessofHarryWinston
Times are changing fast, as Swatch buys a large chunk of Harry Winston.
IsApple’sTimCooktheNextSteveBallmer?
Can Tim Cook escape Ballmer’s fate before it’s too late for Apple shareholders?

Copyright 2013 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc.
No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions.
We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Leo Sun Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

Copyrighted by InvestorGuide.com. All rights reserved.

Leave a Reply