Alcoa Strikes New 52-Week High - Analyst Blog

Shares of Alcoa AA touched a new 52-week high of $13.68 on Apr 17, eclipsing its previous high of $13.44. The stock closed the day at $13.56.

 

The U.S. aluminum giant, which has a market cap of roughly $16 billion, has seen its shares jump roughly 73% over a year and around 28% so far this year. Average volume of shares traded over the last three months is around 29,217K.

 

What's Driving Alcoa Up?

 

Alcoa's adjusted earnings of 9 cents per share for first-quarter 2014, reported on Apr 8, topped the Zacks Consensus Estimate by 4 cents. The company continues to expect aluminum demand to rise 7% this year.

 

Alcoa, a Zacks Rank #2 (Buy) stock, is seeing strong momentum across automotive and aerospace markets. The automotive industry is expected to offer significant opportunity this year and beyond. Alcoa sees meaningful growth of aluminum use in the auto sector in 2014 as automakers increasingly look for the metal as a cost-effective mean to boost performance, safety, durability and fuel efficiency of their vehicles.

 

Alcoa is also witnessing healthy airline fundamentals. It has raised its growth expectations for the aerospace market to 8%-9% from 7%-8% for 2014 factoring in strong demand for both large commercial aircraft and regional jets and sustained growth in the business jet market.

 

Moreover, Alcoa remains committed to move down its cost curves in its upstream businesses and drive profitability in its midstream and downstream businesses. The company has taken up a number of restructuring measures (including closure of smelters) and is aggressively pursuing cost-cutting actions. The company, during the first quarter, announced three smelting capacity reductions.

 

Alcoa made several investments during the first quarter. In its midstream business, the Global Rolled Products unit invested $40 million in Itapissuma, Brazil rolling mill to bump up production of specialty foils. The company also commissioned the $300 million expansion at its Davenport, IA facility. 

 

In the downstream business, the recently launched Ultra ONE – the world's lightest heavy-duty truck wheel – represents a major opportunity. Ultra ONE is a new 40-pound wheel and being 47% lighter than steel wheels of the same size it will help trucks carry more load and also improve fuel efficiency.

 

That said, we account for continued pricing pressure. Aluminum prices remain weak given the oversupply of the metal in the market.

 

Key Picks from the Sector

 

Other mining companies worth considering include General Moly, Inc. GMO, Golden Minerals Company AUMN and Platinum Group Metals Ltd. PLG. While General Moly retains a Zacks Rank #1 (Strong Buy), both Golden Minerals and Platinum Group hold a Zacks Rank #2 (Buy).