Iconic aluminum manufacturer Alcoa (AA) beat Q2 top-and-bottom-line expectations amidst disruptions in global alumina supply. It can send its thank-you note to China as its positive results correlate directly to China’s increasing need to import alumina. With impending constraints on the country’s aluminum production, the global supply is expected to tighten, sustaining elevated alumina prices. The potential for profitability in the coming months and anticipation of heightened aluminum demand predict an optimistic outlook for Alcoa and present a compelling investment in a shifting market landscape.
Alcoa’s Global Footprint
Alcoa is a long-standing player in the industrial metals sector and is renowned for its mining, refining, and smelting operations. Globally, Alcoa and its subsidiaries have a significant presence in producing and selling bauxite, alumina, and aluminum products. The firm operates through two main segments: Alumina and Aluminum.
Alcoa mines bauxite and converts it into alumina, which it then sells to customers who process it further into various industrial chemical products. The company’s aluminum operations also include smelting and casting businesses.
Furthermore, the corporation owns hydroelectric power plants, generating and selling electricity to traders, large-scale industrial customers, distribution companies, and other power generation firms in the wholesale market.
Alcoa’s Recent Financial Results & Outlook
Alcoa’s financial results in the second quarter of 2024 exceeded analyst expectations. The company reported revenue of $2.91 billion, a 12% increase over the prior quarter and surpassing consensus projections of $2.84 billion. This increase in revenue was attributed to higher alumina and aluminum prices. EBITDA increased to $325 million, and the company’s adjusted net income stood at $30 million, driving earnings per share of $0.16, double the analysts’ estimates of $0.08.
The company ended the quarter with a cash balance of $1.4 billion and a free cash flow of $123 million.
Management has revised its guidance for its alumina segment in Q3, decreasing its EBITDA forecast by $10M due to the quality of bauxite in Australia. Conversely, it increased the EBITDA outlook for its aluminum segment by $10M, thanks to advantageous raw material prices. No alterations were made to Alcoa’s prior projections for total production and shipments for the full year in both segments.
Specifically, for aluminum, production is expected to range from 2.2M-2.3M metric tons and shipments from 2.5M-2.6M metric tons. For alumina, production is estimated to range from 9.8M-10M metric tons and shipments from 12.7M-12.9M metric tons.
What Is the Price Target for AA Stock?
Shares have been volatile, sporting a beta of 1.99 while eking out a small gain over the past year. The stock trades near the middle of its 52-week price range of $23.07 – $45.48 while showing negative price momentum by trading below its 20-day (38.39) and 50-day (38.71) moving averages. With a P/S ratio of 0.56x, its valuation appears relatively in line with peers in the Aluminum industry, whose average P/S ratio is 0.44x.
Analysts covering the company have taken a slightly optimistic stance on the stock. For instance, Morgan-Stanley analyst Carlos De Alba, a five-star analyst according to Tipranks’ ratings, recently reiterated a BUY rating on the shares, targeting a $50 to $48 price on the stock. He stated the improved company guidance, recent earnings, and favorable valuation metrics.
Alcoa is rated a Moderate Buy based on six analysts’ recommendations and price targets. The average price target for AA stock is $46.20, representing a potential upside of 36.28% from current levels.
AA Stock in Summary
As an iconic industry leader, Alcoa has demonstrated its resilience by exceeding Q2 expectations despite global alumina supply disruptions. It holds a strong, profitable position in the industrial metals sector with extensive operations across bauxite mining, alumina, and aluminum production. The company’s extensive global operations and diverse product offerings, combined with China’s increasing demand for alumina and constraints in aluminum production, position Alcoa as an attractive long-term investment opportunity.
