The 4 Sources of Value for Alcoa’s Stock

May 23rd, 2011 by Trefis Team
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Alcoa

Alcoa (NYSE:AA) has been in the news quite a lot in the recent past. Early this month, there were rumors of a possible $25 billion takeover of Alcoa by its competitor Rio Tinto (NYSE:RIO). The rumors were silenced within a few days with Rio denying any such development. [1] More recently, the company announced that it has surpassed its 2020 carbon reduction target, a significant achievement. [2] The company competes with other international metals and mining giants like Rusal, BHP Billiton (NYSE:BHP) and Chalco (NYSE:ACH).

Our analysis of the company estimates its value at around $21.3 billion, or $18.55 a share – implying a premium to market price. Below, we list the sources of this value for Alcoa.

The 4 Drivers to the Stock

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1) Primary Metals – represents 36% of the company’s stock value

The primary metals segment consists of Alcoa’s worldwide smelter system. Primary metals receives alumina primarily from the alumina segment. The results from the sale of aluminum powder, scrap and excess power are also included in this segment, and so are the results of aluminum derivative contracts.

See the top forecasts for the primary metals segment

2) Alumina – 23%

The alumina segment consists of Alcoa’s worldwide alumina system. This includes the mining of bauxite, which is then refined into alumina.

See the top forecasts for the alumina segment

3) Engineered Products  – 22%

The engineered products segment includes titanium, aluminum and super alloy investment castings; forgings and fasteners; aluminum wheels; integrated aluminum structural systems; and architectural extrusions used in the aerospace, automotive, construction, commercial transportation and power generation markets.

See the top forecasts for the engineered products segment

4) Flat Rolled Products  – 19%

The flat rolled products segment is responsible for the production and sale of aluminum plate, sheet and foil. This segment includes the production of rigid container sheet, as well as sheets and plates used in the transportation, construction and distribution markets.

See the top forecasts for the flat rolled products segment

See our full analysis for Alcoa here

Notes:
  1. Alcoa shares rise on Rio Tinto rumor – sources deny, Reuters, May 3 2011 [↩]
  2. Alcoa Beats Carbon Reduction Target, Alcoa Press Release, May 11 2011 [↩]