The manufacturer has made a big recovery since the credit crisis, and is in a stronger position after asset striping, slashing its dividend and restructuring. The largest aluminium producer in the US posted its best final-quarter since 2008 in January. The company’s transformation is not over yet, but the changes implemented so far have proved successful, and the firm will continue adjusting to the markets’ needs.
In the final three months of last year, the aluminium producer reported a 14% increase in revenue and a 725% jump in earnings per share (EPS), making it the best operating year since 2008. CEO Klaus Kleinfeld described the year as ‘pivotal’ for the business.
As part of its restructuring business Alcoa has closed down a number of high-cost smelters and reduced its raw aluminium operation. The boost in manufacturing activity in the US has been a major source of growth for the company, and in particular automakers and the aerospace industry. US legislation that requires all cars to have all-aluminium bodies by 2025 will play a huge role in the company’s US business in the years to come.
The Alcoa results are seen as the unofficial start to the US reporting season, and, given the strength of the dollar, many traders are anticipating comments about foreign exchange headwinds. Since most of Alcoa’s sales are dollar denominated, we can expect to hear about currency concerns. On a slightly more positive note, the company acquires some of its materials in domestic currencies which will stand to benefit the aluminium producer.
The consensus for its results is for revenue of $5.94 billion and EPS of 25.7 cents. The fourth-quarter update was well received, with revenue coming in at $6.37 billion and EPS at 33 cents, against market forecasts of $6.05 billion and 27 cents respectively. The firm will report its full-year figures in January 2016; the market is expecting revenue of $24.84 billion and EPS of $1.06. The forecasts represent a 4% increase in revenue and a 15% increase in EPS on last year’s figures.
Equity analysts are very bullish on Alcoa, and of out of the 22 recommendations, 14 are buys, seven are holds, and one is a sell. The average target price is $18.40 which is 37% above the current price. Equity analysts are a touch more on the bearish side when it comes to its rival, Aluminum Corp of China. Out of the three ratings, two are holds and one is a sell. The average target price is $11.28 which is 17% below the current price.
Since the company reported its full-year numbers in January, there has been a 9.5% increase in the number of traders taking short positions on the stock.
The share price has been in a downward trend since November, but it has been pushing higher in recent trading sessions. The stock is receiving support at $13.20, and if this level is held the initial target will be the 200-hour moving average (MA) of $13.60; the stock hasn’t traded above the 200-hour MA since mid-February. If the $13.60 level is cleared then traders will look to fill the gap between $14.40 and the $14 area. If $13.20 is punctured the support at $12.80 will become the target, and below that the 100-week MA at $12.55 will be in sight.
Alcoa will report its numbers after the 9pm close, but it is available for extended hours trading.