Market Overview

Alcoa Could Unlock Value in Split Up

Dow component Alcoa (NYSE: AA), the largest U.S. aluminum producer, could unlock shareholder value by splitting into multiple companies. Following a 50 percent plunge in its shares over the past 18 months, Alcoa is trading at a lower multiple to book value than 94 percent of peers in the aluminum industry, and at a 60 percent discount to its sales, according to Bloomberg.

Davenport & Co. said that by valuing Alcoa's four major businesses on a separate, the company is worth 63 percent than where its shares closed on Monday, Bloomberg reported. Amid a slowing global economy, aluminum demand remains slack and few market observers prices for the commodity to increase in the coming years.

It is commodities exposure that is seen as weighing on Alcoa's shares, but other businesses such as specialized-products are profitable. The company also makes airplane and automobile parts as well as aerospace fasteners, turbine blades and truck wheels. Alcoa's stock is the second-worst performer in the Dow Jones Industrial Average this year. It is also the lowest-priced stock in the Dow, which is a price-weighted index.

Alcoa reports third-quarter results after the close of U.S. markets today. Analysts quoted in the Bloomberg story speculated that if Alcoa does split itself up, its mining operations could attract takeover bids.

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