Alcoa (NYSE:AA) is expected to publish its Q3 2023 results around October 18, reporting on a quarter that saw aluminum prices trend lower. We expect the company’s revenues to come in at about $2.63 billion, marginally ahead of the consensus estimates of $2.59 billion. While this would mark a 2% decline sequentially, it would translate into a year-over-year decline of around 12%. We estimate that the company will post a net loss of about -$0.90 per share, slightly better than the consensus, although this would mark a decline from last year. 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.
We note that AA stock has had a Sharpe Ratio of 0.2 since early 2017, which is lower than 0.5 for the S&P 500 Index over the same period. This compares with the Sharpe of 1.2 for the Trefis Reinforced Value portfolio. Sharpe is a measure of return per unit of risk, and high-performance portfolios can provide the best of both worlds.
Aluminum prices have been weak over the last few months, amid improving supply trends, particularly in China, driven by more relaxed power restrictions and new capacity coming online. Moreover, there have been concerns about the real estate market in China, leading to slower demand from the construction sector. That said, the country could be seeing higher investment in the electrical grid and vehicle production. Moreover, orders from the automotive market, particularly in Europe and North America, are likely strong as the semiconductor shortage eased, helping production. While aluminum prices stood at about $2,400 in early April, they have declined since then to about $2,200 per ton currently. This is likely to impact the company’s revenues for the quarter. Separately, Alcoa has seen some delays in getting approvals for bauxite mining in Australia and this has resulted in the company mining for lower bauxite grades from previously approved areas as of Q2. This could also impact results to an extent, as production costs for these grades will be higher. However, the company could see production costs ease a bit for alumina and aluminum as prices for certain inputs such as caustic soda, and calcined petroleum coke ease.
Overall, we still remain positive on AA stock despite the year-over-year decline in the company’s performance. Alcoa stock remains down almost 40% year-to-date and this could be a compelling entry point. 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 and also due to the fact that its facilities are based mainly in the U.S., resulting in lower energy costs compared to European rivals. We value AA stock at $39 per share, which is well ahead of the current market price of about $29. 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.
|S&P 500 Return||-1%||11%||90%|
|Trefis Reinforced Value Portfolio||-3%||20%||514%|
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