Alcoa’s 2017 in Review

December 26th, 2017 by Trefis Team
-4.90%
Downside
36.35
Market
34.57
Trefis
AA: Alcoa logo
AA
Alcoa

Alcoa (NYSE:AA) has performed significantly well this year, especially in the second half of the year. The company’s stock price has risen by 70% since the beginning of the year, with most of the volume driven by the factors affecting the prices of aluminum and alumina.

(Source:NASDAQ)

Market Factors Affecting the Price of Aluminum

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The prices of both aluminum and alumina have been boosted by a combination of supply and demand related factors. On the supply side, the central government in China — the world’s largest producer of aluminum — had intended to shut down excess aluminum and alumina production capacity, in order to tackle their pollution problem, which had eased concerns over an oversupply of these commodities. [1] On the demand side, a fiscal stimulus targeting the infrastructure sector instituted by the central government in China, the world’s largest consumer of aluminum, had boosted the demand outlook for aluminum from the real estate and automotive sectors. In addition, the potential implementation of the U.S. government’s planned $1 trillion infrastructure plan had further boosted the demand outlook for aluminum.

(Source: LME Website)

Alcoa saw a Year-to-Date (YTD) rise in its revenue of approximately 30% compared to the same period last year as per the data released in its 3rd quarter results. This was mainly driven by a rally seen in aluminum prices. Alcoa’s YTD average price realized from aluminum has risen by 18% in contrast to a 9% increase in shipment volume (in comparison with 2016). [2] The company currently has 0% dividend yield and the distribution of a dividend would make the company increasingly attractive to its investors.

We have a $42 price estimate for Alcoa which is currently below the market price.

Have more questions about Alcoa? See the links below.

Notes:

1) The purpose of these analyses is to help readers focus on a few important things. We hope such communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Alcoa

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Notes:
  1. Why aluminium prices are set to increase in H2 2017, Aluminum Insider [↩]
  2. Alcoa Form 10Q, SEC Filings)

    Looking Ahead

    Alcoa’s revenue in its 4th quarter may be dampened due to the fact that the supply side reforms in China have not been as severe as anticipated. This has led to a moderate fall of the prices of aluminum in November. However, the favorable demand outlook for aluminum, especially with the increasing popularity of electric vehicles in the long term, would continue to benefit Alcoa going forward. Additionally, the improved cash flow position of the company due to the aforementioned factors have caused a speculation regarding the possibility of a dividend announcement by the company in 2018. ((6 Reasons Alcoa Can Fly, Barrons [↩]