Alcoa Inc (AA) Q3 Preview: Analysts Raise Targets On Higher Aluminum Prices

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Several equity research firms increased their earnings estimates for Alcoa Inc (NYSE:AA) for the third-quarter to reflect higher LME aluminum pricing. The company is scheduled to release its quarterly financial results on Wednesday, October 8.

Sterne Agee has $0.20 EPS estimate for Alcoa

Analysts at Sterne Agee noted that the movement of the shares of Alcoa Inc (NYSE:AA) was driven by aluminum LME pricing (up ~8% intra-quarter alone) and the strengthening of commodity fundamentals over the past 12 months. The company also benefited from its aggressive cost containment.

Over the past 12 months, the stock price of Alcoa Inc (NYSE:AA) traded from $7.84 to as much as $17.36 per share. The stock gained more than 100%. The shares of the aluminum giant closed $15.99 per share, up by 2.5% on Monday, October 6.

Alcoa 12 months stock performance

Sterne Agee analysts Josh Sullivan and his team believed that the aluminum giant’s value added business in Engineered Products & Services (EP&S) and Global Rolled Products (GRP) remain underappreciated. The analysts estimated that the EP&S and GRP will account more than 50% of its after-tax operating income (ATOI).

Sullivan and his team also noted that LME aluminum pricing has been strong since their last updated assumption on upstream commodity. The analysts estimated that Alcoa Inc (NYSE:AA) would be able to deliver $0.20 in earnings per share for the third-quarter compared with the $0.21 consensus estimate. They have a Buy rating on the stock with a price target of $18 per share.

Nomura raises EPS estimate for Alcoa Inc (AA) to $0.24

On the other hand, analysts at Nomura raised earnings estimate for Alcoa Inc (NYSE:AA) from $0.14 to $0.24 per share, higher than the consensus estimate.

Nomura analysts Curt Wood and Alexander Burnes explained that the increase was based on higher commodity pricing (primary metals, alumina and LME primary aluminum). The analysts noted that the average price of LME primary aluminum during the third-quarter was $0.90/lb compared with their estimated of $0.86/lb.
Wood and Burnes added that physical premiums increased by $30/t on averaged compared with their expectation of a moderate decline. During the period, the analysts noted that physical premiums remained elevated at $39/t, an increase of 11%.

“Based on its regional premium exposure and pricing convention, we estimate that
Alcoa’s average physical premium increased by about $36/t, which all else equal should raise primary ASPs by the same amount,” wrote Wood and Burnes.

Meanwhile, Trefis said the increasing emphasis of Alcoa Inc (NYSE:AA) on its high-margin value-added products is expected to contribute a positive impact on its third-quarter financial results.

The firm also emphasized that the recent strength of aluminum prices will also have a positive effect on its primary aluminum and alumina businesses.

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