Why Is Alcoa Stock Attracting Investor Optimism?

AA: Alcoa logo

The shares of Alcoa (NYSE: AA) continued an upward trajectory as commodity prices surged due to the Russia-Ukraine war and skyrocketing inflation. Alcoa is a global industry leader in bauxite, alumina, and aluminum products with operations across nine countries. As the WHO actively explores the criteria to end the pandemic, macroeconomic growth is expected to continue in 2022 despite the ripple effects of war in Europe. Thus, Alcoa’s revenues are expected to remain strong for the year assisted by growing demand and strength in commodity prices. Trefis highlights the historical trends in Alcoa’s revenues across key operating segments in an interactive dashboard analysis.

How did Alcoa perform in 2021?

In 2021, Alcoa reported a 30% (y-o-y) growth in total revenues assisted by rising prices of alumina and aluminum from pent-up demand and uncertainties surrounding the Russia-Ukraine war. The company’s Bauxite, Alumina, and Aluminum segments account for 2%, 26%, and 72% of total sales, respectively. Geographically, the U.S., Netherlands, Australia, Spain, Brazil, and Other regions account for 43%, 22%, 17%, 12%, 5%, and 1% of total sales, respectively. However, around 65% of the company’s long-lived assets including plant and machinery are located in Australia, Brazil, and Iceland. With $920 million of cash from operations and $565 million of net proceeds from investment activities, the company repaid $800 million of long-term debt and distributed dividends for the first time since its inception in 2016. Per recent filings, the company expects the transportation, construction, and packaging industries to be key demand hubs for aluminum in the coming years. Thus, there is a strong likelihood of demand exceeding supply and assisting cash generation capabilities of Alcoa in the coming years.

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Stock Has Outperformed Broader Markets

AA stock declined from levels of around $17 in February 2020 (pre-crisis peak) to levels of around $6 in March 2020 (as the markets bottomed out), implying AA stock lost 66% from its approximate pre-crisis peak. It observed a strong rally post broader market sell-off and has reached the highs of $82 at present. In comparison, the S&P 500 Index first fell 34% as lockdowns were imposed in many countries and since almost doubled in value.

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 Returns Mar 2022
MTD [1]
YTD [1]
Total [2]
 AA Return 9% 38% 194%
 S&P 500 Return 2% -6% 99%
 Trefis MS Portfolio Return 2% -8% 262%

[1] Month-to-date and year-to-date as of 3/21/2022
[2] Cumulative total returns since the end of 2016

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