Monday, July 20, 2015

Seeking Alpha: Alcoa Trying To Find The Path To A Better Neighborhood

What do you do when your neighbors are committed arsonists who know that they don't have to face the full costs and consequences of their actions? That may be rather extreme and hyperbolic, but it's how I've started to think about Alcoa (NYSE:AA). I really like Alcoa's progress in reducing its cost structure , shutting down higher-cost capacity, and leveraging itself more toward downstream higher value-add applications, but a lot of the progress the company has made has been undone by Chinese producers willing to produce at uneconomic standalone prices due to input cost supports from the Chinese governments.

I think there's an argument to be made that Alcoa ought to trade closer to $16 to $17 today, but just a few minor model adjustments can drop the fair value down to $10 or lower. Alcoa is well-positioned to play a more prominent role in the aerospace cycle, but the company's balance sheet likely restricts the amount (or at least the pace) of transformation from this point and other drivers like increased use of aluminum in auto production aren't certain.

Continue reading here:
Alcoa Trying To Find The Path To A Better Neighborhood

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