Alcoa Corp. (AA) is a vertically integrated aluminum company whose operations include bauxite mining, alumina refining, and the manufacture of primary aluminum. It is the world’s largest bauxite miner and alumina refiner by production volume, and its profits are closely tied to prevailing commodity prices along the aluminum supply chain.
The company reported earnings last month and both earnings and revenue came in ahead of forecasts, but were down year over year. AA has struggled during pandemic, which has led to a decline in industrial production. This has resulted in a fall in demand for aluminum and other metals. Management expects its aluminum business to drop in the current quarter due to higher energy costs and a change of mix in customer shipments.
The company generated $84 million in free cash flow during the quarter and raised $750 million in new debt, giving AA a cash balance of $1.7 billion. Long-term debt was $2.5 billion at the end of the quarter.
AA has had negative growth over the past three years, but analysts expect some sales growth next year. The company has a pretty low Price/Sales ratio of 0.3, well below the S&P 500’s 2.7. The stock has shown strong near and mid-term momentum, but is down more than 27% for the year. This has led to a “Neutral” rating in our POWR Ratings system.
Take a look at the 1-year chart of AA below with my added notations…
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