Alcoa (NYSE:AA) is expected to publish its Q1 2023 results on April 19 reporting on a quarter that saw aluminum prices face considerable volatility. We expect the company’s revenues to come in at about $2.76 billion, roughly in line with the consensus estimates. While this would mark a sequential increase of about 4%, it would translate into a year-over-year decline of around 16%. We estimate that earnings will stand at just $0.05 per share, slightly ahead of the consensus, although this would mark a decline from levels of around $2.49 in the year-ago period. So what are some of the trends that are likely to drive Alcoa’s results? See our interactive dashboard analysis on Alcoa Earnings Preview for more details on how AA’s revenues and earnings are likely to trend for the quarter.
Aluminum prices have been quite volatile in recent months, rising from $2,300 per ton in early January to about $2,650 by the end of January, due to optimism surrounding the post-Covid re-opening in China. However, prices fell to about $2,400 by the end of March. Aluminum output from China has been expanding, driven by relaxed power restrictions and new capacity coming online and this has also been putting a lid on price appreciation. Moreover, Alcoa’s production is also facing some headwinds due to the high price of natural gas, particularly in European countries such as Spain and Norway. The higher costs could also impact margins and earnings. The company is also likely to be impacted by the lower quality of bauxite at its Australian refineries. Although Alcoa has not provided specific guidance for Q1 2023, it expects to ship between 2.5 and 2.6 million metric tons of aluminum in 2023, consistent with 2022, while alumina shipments are projected to decline a bit.
However, we still remain positive on AA stock. Alcoa stock has already declined by over 55% from levels seen around March 2022 and remains down almost 14% year-to-date. Moreover, rising investments in the renewable energy sector including electric vehicles, charging infrastructure, and solar and wind power plants remain secular drivers for aluminum demand. We think that Alcoa has an edge over other aluminum producers given its strong balance sheet (net debt of about $440 million) and also due to the fact that its facilities are largely based in the U.S., resulting in lower energy costs compared to European rivals. We value AA stock at $48 per share, about 20% ahead of the current market price. See our analysis of Alcoa valuation for a closer look at what’s driving our price estimate for Alcoa and how Alcoa’s valuation compares with peers. Also, see our analysis of Alcoa Revenue for more details on how Alcoa’s revenues are expected to trend.
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