Further Restructuring At Alcoa Is Welcome, But Macro Pressures Are Still In Play

All you might really need to know about how things have been going at Alcoa (AA) is that sell-side expectations for 2019 EBITDA were around $2.4 billion in January and the average estimate is now around $1.6 billion. With demand hurt by weak global auto production and slowing economies around the world, and exacerbated by the U.S.-China trade tensions, alumina and aluminum prices have disappointed relative to initial expectations, and Alcoa hasn’t been able to do nearly enough on the cost side to offset that pressure.

I feel a little bad about being hard on Alcoa, given that I think management’s recently-announced portfolio review and restructuring plans are a sound move. The problem is that this is still an overleveraged commodity company that is too far up the price curve and too much at risk to Chinese production volumes. The shares do look too cheap to me at around 4x-5x 2020 EBITDA (including pension liabilities), but too much is riding on a successful restructuring for my comfort.

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Further Restructuring At Alcoa Is Welcome, But Macro Pressures Are Still In Play