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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