Alcoa Inc Could Benefit From F-150, 'Massive Trend' Toward Aluminum Automobiles
"Clearly, Ford's F-150 is going to have a lot of aluminum content," Tigress Financial Partners analyst Philip Van Deusen told Benzinga. "Our expectation is that this is the beginning of a pretty massive trend toward more aluminum content in autos."
Van Deusen noted that there are other vehicles, such as the Tesla Model S, that use an extensive amount of aluminum.
"Even Chrysler is toying with the Jeep Wrangler having a lot more aluminum content," Van Deusen added.
Even so, Sterne Agee analyst Josh Sullivan suspects that most automakers will be reluctant to jump on the aluminum bandwagon until Ford Motor Company (NYSE: F) has proven its worth.
"I think you're going to see a lull here while the other OEMs wait and see how the F-150 rolls out and how consumers accept an aluminum truck," Sullivan told Benzinga. "If it's a rapid uptake and you see the market go Ford's away, I think you're gonna see others more quickly announce their aluminum conversions. But I think there's gonna be a lull here while the F-150 rolls out."
Bullish On Aluminum
Van Deusen said that Tigress is "very bullish" on the aluminum industry.
"We got a Buy rating on Alcoa [and] Kaiser Aluminum," he said. "We're expecting another strong quarter with strong growth for U.S. in the quarter."
Unlike most companies in the S&P 500, Alcoa relies heavily on the domestic market.
"They get about 51 percent of their revenue from the United States, so we feel they are a little isolated from some of the forex impacts that a lot of other companies in the S&P have," Van Deusen added. "We think that's going to be to their benefit going forward. In general, our expectations are pretty strong for Alcoa's results."
Smartphones: Do They Matter?
This is huge for Apple Inc. (NASDAQ: AAPL), but does it mean anything for an aluminum supplier like Alcoa?
"I'm not sure if they're an Apple supplier," said Sullivan. "Think of the size of an F-150 versus an iPhone. The overall poundage usage is so dramatically different. Consumer products are definitely helpful with aluminum being used in a lot of those, but I don't know how impactful it would be to the overall numbers. But it's definitely a positive."
Van Deusen doesn't expect smartphones to have much of an impact on Alcoa "given the scale of the company."
"You're talking about airplanes and cars," said Van Deusen. "The content for mobile phones is much smaller by comparison, and probably is not nearly as important for Alcoa as even container packaging. That's another growth market for them at the moment just for the consumer demand in China and, surprisingly, Europe. Aluminum cans in Europe are actually growing as well."
Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.
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