Alcoa Earnings Preview: Q1 2009

Alcoa [[AA]] is scheduled to report fourth quarter 2009 results after the market closes on Tuesday, April 7. Based on our analysis, we at are expecting AA to report disappointing results that will miss Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $3.95 billion and EPS of $(.61). This would represent a 46% decrease in revenues from last year’s $7.38 billion in the same period. The current analyst consensus calls for revenues of $4.1 billion and $(.52) EPS.


Alcoa, as the world’s largest aluminum producer, tends to move inline with aluminum prices. Unfortunately, since last summer aluminum prices have been in free fall. We believe these depressed aluminum prices will continue to weigh on Alcoa’s performance


The next couple of quarters will undoubtedly be difficult for the company. However, many believe that the current aluminum pricing levels are unsustainably low. If that is true, Alcoa would certainly stand to benefit as prices rise in the second half of the year.


Share Performance

Alcoa’s shares are down 35% since the beginning of the year. In 2008, it fell 69% underperforming the 34% decline in the Dow Jones index. However, the stock has participated in the markets recent rally and finished the month of March up 18%.



Shares are now trading at 13x consensus 2010 EPS estimates. This is a premium to the relative valuations of their peer group. While we believe that long-term investors will benefit by holding Alcoa, we would expect to trade lower in the short term.


Recommendation: Hold with a $6 price target.


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