Lackluster Earnings And Guidance Create An Opportunity In Alcoa

Alcoa (AA) is not the easiest stock to follow or own. While Alcoa enjoys a solid position on the cost curve for both bauxite and alumina and has made progress with its aluminum costs, there are a lot of moving parts to the model that management has little or no control over, including the hard-to-predict behavior of the Chinese government toward its smelters. Longer term, I'd like to see Alcoa pursue an upstream merger to further consolidate the industry and create more cost-cutting opportunities, but in the meantime, the outlook for aluminum in 2018 should some upside.

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Lackluster Earnings And Guidance Create An Opportunity In Alcoa

Commodity HQ: A Deeper Look At China's Commodity Industry

Although the geographical size of China is perhaps not that difficult for North Americans to appreciate, their population is another matter. As China has become the second-largest economy in the world, it is without question transformed into an enormous force in the world’s commodity markets; so much so, in fact, that the recent commodity supercycle is now generally seen as a byproduct of China’s emergence.

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A Deeper Look At China's Commodity Industry

Commodity HQ: A Deeper Look At China's Commodity Industry

Although the geographical size of China is perhaps not that difficult for North Americans to appreciate, their population is another matter. As China has become the second-largest economy in the world, it is without question transformed into an enormous force in the world’s commodity markets; so much so, in fact, that the recent commodity supercycle is now generally seen as a byproduct of China’s emergence.

Please read more here:
http://commodityhq.com/2012/a-deeper-look-at-chinas-commodity-industry/

Investopedia: Alcoa Still A Victim Of Circumstance

Alcoa (NYSE:AA) deserves a lot of credit for managing a difficult aluminum market and continuing to make productivity improvements. Unfortunately, the market doesn't reward feel-good stories. Accordingly, while Alcoa shares continue to look cheap and the long-term aluminum market fundamentals look better, it seems probable that these shares won't really work until aluminum prices get going again.

A Pretty Strong First Quarter, Relatively Speaking
Alcoa's first quarter wasn't great in absolute terms, but the company did do a fair bit better than expected and Wall Street is all about relative performance.

Read more here:
http://stocks.investopedia.com/stock-analysis/2012/Alcoa-Still-A-Victim-Of-Circumstance-AA-RIO-ACH-BHP0412.aspx

Investopedia: Still Waiting For Alcoa To Work

As aluminum is an economically sensitive metal, it is probably no great surprise that Alcoa (NYSE:AA) stock has underperformed amidst growing worries that the U.S. will trip over into recession. On the other hand, there are a lot of secular positives for both aluminum and Alcoa, that argue in favor of the thought that this stock should work at some point. The question, then, is whether patience can really pay large enough dividends to make Alcoa worth the time and trouble.

A Fixed Third Quarter   
Alcoa missed the earnings estimate for the quarter and that's certainly disappointing. It also isn't quite as bad as it may seem. Revenue rose about 21% from last year, but declined about 3% from the prior quarter. Performance was fairly consistent across the company's operating segments, but Alcoa did see a slowdown in demand from automakers and heavy truck manufacturers. On the profit side, ATOI (after-tax operating income) rose 41% from last year, but dropped 27% on a sequential basis.

Read more here:
http://stocks.investopedia.com/stock-analysis/2011/Still-Waiting-For-Alcoa-To-Work-F-AA-RIO-BHP-ACH-BA-GE-AKS-WHR1017.aspx

Investopedia: Can Alcoa's Recovery Continue?

It is almost hard to believe that Alcoa (NYSE:AA) shares went for about $5 a share in early 2009, but that was the depth of pessimism about global growth. Since then, investors are a lot more positive on the fortunes and future of aluminum, but the question remains whether Alcoa can continue to reward its supporters.

A First Quarter That Didn't Quite Make It 

Alcoa had a decent quarter and pricing in the aluminum market is getting better, but things were not quite as good as analysts had hoped. There was a big spread in analyst estimates (about $1.1 billion), and though Alcoa only missed the average by a relatively small amount, the company was clearly a ways off the high end of the range. Profitability was solid and on target, but that only seems to matter when it's significantly better or worse than analysts hope.

It really was not a bad quarter, though. Sales were up 5% from last year (and up 22% sequentially), and EBTIDA snapped back to the tune of 22% sequential growth and 60% annual growth.

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http://stocks.investopedia.com/stock-analysis/2011/Can-Alcoas-Recovery-Continue-AA-FCX-AWC-ACH-RIO-KALU-DOW0413.aspx

Investopedia: Alcoa: It's All About China Now

In a market that still seems obsessed with finding "China plays", Alcoa (NYSE:AA) might not be the first name that comes to mind. The reality, though, is that China largely calls the tune these days and this giant aluminum company has little choice but to dance to it as best it can.

The Quarter That Was
Alcoa had a respectable fourth-quarter performance. Sales growth was not exactly robust, as the company produced sequential growth of 7% and annual growth of 4%, but it was good enough to more or less meet the average estimate. Within the numbers there was a relatively normal level of choppiness - Engineered Solutions revenue rose by 11%, while Alumina and Flat-Rolled were laggards with flat revenue and 1% growth, respectively.

To a certain extent, that sales profile worked in the company's favor. Although it is certainly the case that sales performance (both absolute and relative) impacts margins, the company saw the best top-line growth in its highest-margin segments. That helped fuel overall after-tax operating income growth of 14% on a sequential basis and 65% on a year-over-year basis, with Primary Metals leading on both an absolute and relative basis. (For more, see Zooming In On Operating Income.)

Trying to put that into a little more context, the profitability of Alcoa is still a good news / bad news proposition. Looking back through Alcoa's history and trying to craft a "normalized" run-rate, it looks like Alcoa is about 10% below normal in terms of flat-rolled production and maybe 20% below normal in engineered products. Here is why that really matters - the incremental costs involved in those two production profiles are quite small and Alcoa could probably double its profitability in each segment at a "normal" run rate. In other words, there is major positive profit leverage if Alcoa can get back to normal (without a major collapse in prices). (For more, see Alcoa Predicts Aluminum Boom.)

Read the full column at:
http://stocks.investopedia.com/stock-analysis/2011/Alcoa-Its-All-About-China-Now-AA-ACH-VALE-FCX-BHP0112.aspx

Met-Coal Mash Up

Given all the rumors and discussions about the bid, the actual announcement that Walter Energy (NYSE:WLT) is buying Canada's Western Coal for C$11.50 a share is perhaps something of an anticlimax. That notwithstanding, this deal will create the largest metallurgical coal pure-play and the third-largest met coal producer overall. 

The Deal
Under the terms of the deal announced Friday, Walter will offer Western Coal shareholders their choice of C$11.50 in cash or 0.114 shares of Walter Energy, or a combination thereof up to a limit of 70% total cash in the deal. That represents a total deal value of about $3.3 billion and a 56% premium on Western Coal shares before this chatter began. 


The New Company
As Walter Energy boasted in its press release on the deal, this combination will create the largest pure-play met coal producer in the world, with some 385 million tons of reserves. Met coal is used primarily in smelting iron and steelmaking, where the higher carbon content (and lower moisture) of this type of coal is necessary. That is different than thermal coal - the coal used to power electrical utilities, and the bulk of the coal produced and sold by companies like Peabody Energy (NYSE:BTU) and Arch Coal (NYSE:ACI). (For more, see Metallurgical Coal Update.)

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http://stocks.investopedia.com/stock-analysis/2010/Met-Coal-Mash-Up-WLT-BTU-ACI-RIO-MEE-ANR-PKX-ACH-MT-BHP-TCK1205.aspx

Will The Market Show Faith In An Aluminum Recovery?

In the metals market today, details matter. Iron ore giant Vale (Nasdaq:VALE) is near a 52-week high, as are major gold producers like AngloGold Ashanti (NYSE:AU) and Newmont Mining (NYSE:NEM); copper companies like Freeport-McMoRan (NYSE:FCX); and diversified mining giants like Rio Tinto (NYSE:RTP). (For background reading, see A Beginner's Guide To Precious Metals.)

Unfortunately, Aluminum companies are not feeling the love. Spot prices on the London Metal Exchange have recovered nicely from early summer lows, but aluminum giant Alcoa (NYSE:AA) is trading closer to the bottom of its range than the top. Will solid third-quarter results and improving underlying trends start a new move up in the stock, or will Wall Street stay in a "show me" mode a while longer? 


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http://stocks.investopedia.com/stock-analysis/2010/Will-The-Market-Show-Faith-In-An-Aluminum-Recovery-AA-VALE-AU-NEM-FCX-RTP-BA1008.aspx

China's Potash Hypocrisy

If nothing else, China has chutzpah. China's government put out a statement early on Wednesday indicating that it was paying "close attention" to the possibility that BHP Billiton (NYSE:BHP) would succeed in its bid to acquire Canadian fertilizer giant Potash (NYSE:POT). In mentioning that a so-called BHP potash monopoly would "harm global interests" and that prices are already "unbearable" for Chinese farmers, it would seem that this is a not-so-subtle shot across the bow for not only BHP, but perhaps Canada as well. 

Given that BHP Billiton has a significant stake in Chinese potash company China Sinofert, China actually does have some influence in this process and could certainly apply pressure to BHP through that investment. Moreover, there is still the possibility that a Chinese investment fund or company could make a competing bid for Potash - even as large Chinese companies seem reluctant to commit to much interest in such a move.

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http://stocks.investopedia.com/stock-analysis/2010/Chinas-Potash-Hypocrisy-BHP-POT-SNP-PTR-ACH-BYDDY-LYSDY0916.aspx