Bear of the Day: Alcoa (AA)

Alcoa Inc. (AA) is based in Pittsburgh, PA, and is a producer of aluminum, fabricated aluminum, and alumina. The company has an active role in all major parts of the industry: fabricating, mining, recycling, refining, smelting, and technology.

Disappointing Q1 Results

Revenues of $2.719 billion fell 12% year-over-year, and came in just below the Zacks Consensus Estimate. The bottom line came to an adjusted loss of 23 cents per share, also missing our consensus.

Shares were down 5% following the earnings release.

But, one bright spot of the company’s release was its free cash flow. Alcoa managed to generate $99 million in positive FCF in Q1, despite weakening alumina and aluminum prices; it was also a big improvement over the negative $19 million in free cash flow it reported in the year-ago quarter.

Alcoa’s shipment outlook for Bauxite, Alumina, and Aluminum for 2019 remains unchanged. The company expects total bauxite shipments expected to be between 47.0 and 48.0 million dry metric tons; alumina shipments between 13.6 and 13.7 million metric tons; and aluminum shipments between 2.8 and 2.9 million metric tons.

Estimates Keep Falling

Alcoa Corp. Price and Consensus

Alcoa Corp. Price and Consensus | Alcoa Corp. Quote

Analysts have since turned bearish on Alcoa, with seven cutting estimates in the last 60 days for the current fiscal year. Earnings are expected to plunge over 66% for the year, and the Zacks Consensus Estimate has dropped 68 cents during that same time period from $1.89 to $1.21 per share.

This sentiment has stretched into 2020. Though earnings could bounce back and grow more than 70%, our consensus estimate has dropped significantly in the past two months.

AA is now a Zacks Rank #5 (Strong Sell).

Shares of the aluminum producer are up only 1.2% since January. In comparison, the S&P 500 is up 18% year-to-date.

Bottom Line

CEO Roy Harvey did point out that Alcoa improved operations in Q1 in the face of a weakening price environment. The company also “took steps last quarter to restructure our Aluminum portfolio,” Harvey said in Alcoa’s earnings release.

But, the headwinds Alcoa are facing have been persistent, and since the company is a commodity-linked business, any looming threat of a slowdown in the economy is going to put pressure on Alcoa and its stock.

Investors who are interested in adding an Alcoa peer should take a look at Lawson Products (LAWS) or Reliance Steel & Aluminum Co. (RS). The two companies are part of Zacks’ Metal Products-Distribution industry, and hold a Zacks Rank of #1 (Strong Buy) and #2 (Buy), respectively.

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Reliance Steel & Aluminum Co. (RS) : Free Stock Analysis Report
 
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