Alcoa Reports Disappointing Earnings Despite Strong Revenue Growth

Alcoa reported second quarter 2011 results after the market closed today that mixed versus Wall Street’s expectations. Revenue came in at $6.6 billion well ahead of Wall Street’s consensus estimate of $6.3 billion. However, EPS came in at only $.32. That was up 146% from last year, but still $.02 below the Street’s expectations.

 

Key Highlights

The company touted their strong revenue growth of 27 percent y/y and reiterated their positive outlook for the company:

 

“Demand for aluminum continues to rise and so does growth in our major markets. These factors support our projection that aluminum demand will grow 12 percent this year and will double by 2020.”

 

Earnings Analysis

Better than expected revenue growth is a welcome sign for both Alcoa and stock market investors. Global demand appears to be very strong. Alcoa forecasted that demand for aluminum will grow by 12 percent this year on top of a 10 percent increase in 2010.  

 

Share Performance

In after hours trading, Alcoa’s shares were up 0.6 percent to $16.00 following the earnings report. We would expect trading in the stock to remain muted tomorrow given the company’s weak bottom line results.

 

Valuation

Alcoa shares are now trading at 10x consensus 2012 EPS estimates. That is below the relative valuation of their peer group.

 

Recommendation: We believe that Alcoa is attractively valued and that investors should take advantage of any selloff in the stock.

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