Alcoa Earnings Preview: Third Quarter 2009

Alcoa [[AA]] is scheduled to report their third quarter 2009 results after the market closes on Wednesday, October 7. Based on our analysis, we at are expecting AA to report better than expected quarterly results that will exceed Wall Street’s consensus expectations.


Analyst Expectations

We are forecasting revenues of $4.52 billion and EPS of ($.08). This would represent a 38% decline in revenues from last year’s $7.23 billion in the same period. The current analyst consensus estimates calls for revenues of $4.46 billion and EPS of ($.12).


The continued recovery in aluminum prices should help Alcoa deliver stronger than expected results to kick off the third quarter earnings season. While revenues declined 41% y/y last quarter, improving aluminum prices allowed them to deliver a surprising earnings beat after three consecutive disappointing quarters.  


Of course the headline sales declines are still going to look very negative for Alcoa. However, beginning in the first quarter of 2010, the company will have very favorable comps that should allow for strong annual growth performance. The recovering global economy should lead to additional demand for aluminum which will push prices even higher in 2010. Higher aluminum prices combined with the cost cutting initiatives that the company has implemented over the last few quarters could lead to some very strong quarterly performances in 2010.


Share Performance

Since the beginning of the year, Alcoa’s shares have gained 18%. In 2008, AA’s shares fell a phenomenal 68% and badly underperformed the 34% decline in the Dow Jones industrial average.



Shares are now trading at 28x consensus 2010 EPS estimates. This is above the relative valuations of their peer group. With Alcoa positioned to deliver strong 2010 results, we expect that investors will become much more bullish on this stock over the coming months.


Recommendation: Buy with a $15 price target.


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