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The firm posted a net income of $195 million for the first three months of the year, which compared with a net loss of $178 million for the same period last year. The swing from a loss to a profit shows that the change of strategy is working. The adjusted earnings (which strips out restructuring costs) came in above market estimates, but the revenue for the period misses estimates, and this played on traders’ minds.
The CEO Klaus Kleinfeld pointed out that the asset stripping has reduced group revenue. The focus is now being shifted from the traditional smelting operations and commodity related business, to manufacturing industries – like aerospace and car making. As I previously stated, US regulations state that all new cars must use all-aluminium bodies by 2025, and Alcoa is gearing up for the change to regulations. Ford has already swapped steel for aluminium in its new F150 pick-up track, and the rest of the industry will have to fall into line over the decade.
The firm recently acquired Firth Rixson in the UK, and Tital in Germany, and both companies manufacturer parts for the aerospace sector. This is a sign of what is to come from Alcoa. Mr Kleinfeld pointed out that the company’s backlog of orders would take approximately nine years to complete, and the bulk of the orders are coming from the aerospace industry.
When Alcoa reveal its second-quarter figures, the market is expecting revenue of $5.81 billion and earnings per share of 23 cents. The first-quarter numbers were not well received, and the revenue was $5.81 billion and EPS came in at 28 cents, and the market was anticipating $5.94 billion and 26 cents respectively. The firm will announces its full-year numbers in January 2016, and the market is anticipating revenue of $23.71 billion, and EPS of 93 cents. These forecasts represent a 0.8% fall in revenue and a 1% increase in EPS.
Equity analysts are bullish on Alcoa, and out of the 19 recommendations, ten are buys, eight are holds, and one is a sell. The average target price is $16.34, which is 44% above the current price.
The number of short positions being taken out on Alcoa has risen by 96% since the company reported its first-quarter numbers, and the short interest on the stock is at its highest level in 12 months.
The share price has been in a downward trend since November, and $10 is the target. If that mark is punctured $9.60 will be the next area of support. Any moves higher will encounter resistance at $11.70, and if that hurdle is cleared $12 will be act as a barrier.