The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication.
The commodity space in its entirety has been suffering for a number of years, and the drop in aluminum price has prompted Alcoa to do some serious restructuring. This has involved shutting down high-cost smelters, and focusing on where its value is, which has entailed expending its manufactured-parts division. The gradual shift from primary industry to a more manufacturing-focused led to the announcement that the firm will be splitting in two, with the split due to be completed in 2016.
As I stated previously, the company has been asset stripping since the credit crisis, and cost cutting has helped the company get back to posting strong earnings, but it is time for the next phase of the transformation plan. Alcoa has reached a point where its add-on business it supplies to aerospace and automotive industries needs to go its own way, and Klaus Kleinfeld – who has been at the helm since 2007 – will run the manufactured parts company.
Alcoa will announce its third-quarter results on 8 October, and the market is anticipating revenue of $5.6 billion and earnings per share of 14.9 cents. This compares with the second-quarter revenue and EPS of $5.89 billion and 19 cents respectively. The company will announce its full-year results in January, and the market is expecting revenue and EPS of $23.16 billion, and EPS of 75 cents, which compares with last year’s figures of $23.9 billion and 92 cents.
Analyst are bullish on Alcoa, and out of the 17 ratings, ten are buys, six are holds, and one is sell. The average target price is $13.31, which is 39% above the current price.
The number of short positions on Alcoa is now at its highest point in the last 12 months.
The stock market reacted well to the news the company is splitting in two, but the share price has been sliding since February 2015, and the support at $9 is the target. If that level is punctured then $7.97 will be the price to watch. The breakup of the company will bring about efficiency down the line, but the trend is clearly downward, and a move through the resistance at $10.15 could be the start of a turnaround, and a break above it will bring $10.75 into play. Beyond that level, £12.30 will be the next stumbling block.