Sentiment And Execution Boosting Alcoa's Share Price

When I wrote about Alcoa (AA) after the aluminum company’s first quarter earnings, I saw this as a risky, relatively low-quality name that nevertheless had upside to the mid-teens on prospects for a V-shaped recovery in multiple manufacturing end-markets. In the interim, investors have largely taken the bear-case scenarios for the pandemic-driven recession off the table, and initial data from China’s recovery have been generally positive, helping drive Alcoa shares toward that mid-teens target price and up about 90% from the time of that last piece.

Alcoca management has also helped its own cause, with solid ongoing execution and a continued willingness to make difficult decisions to improve margins and cash flows (like the restructuring at the high-cost San Ciprian facility in Spain). My primary concern on Alcoa shares now is whether a lot of the benefit of a V-shaped recovery is already in the stock. While Alcoa’s high financial leverage makes it quite sensitive to any changes in estimates (positive or negative), I still don’t like the fundamental outlook for the aluminum industry on a long-term basis, and I believe Alcoa is more of a trading opportunity on sentiment than a core buy-and-hold.

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Sentiment And Execution Boosting Alcoa's Share Price