I Can't Believe I'm About to Say this About Alcoa

No, this is no April fool’s joke. Alcoa Inc. (AA), the aluminum producer that always kicks off earnings season, is now a buy in Portfolio Grader. I’m not exaggerating when I say that this hasn’t happened in years.

AA shares touched a one-year high yesterday after some analysts slapped a $15 price target on the stock—over 13% above current prices. Lately Alcoa Inc. has been grabbing headlines after it announced several new initiatives in Brazil (expanded production of aluminum packaging materials, reduced capacity at aluminum materials, etc.). The company also received kudos for keeping hundreds of jobs at one of its plants in northern New York.

But what really sparked the upgrade? If you look at Alcoa Inc.’s stock report page on Portfolio Grader, you’ll notice that the stock was upgraded to a buy because it now has an A-rated Quantitative Grade. Meanwhile, the company has plenty of work left on its financial statements. Just take a look at its Fundamental Grade:

Ouch! Of the eight fundamental metrics I graded AA on, it outright failed. So Alcoa still doesn’t have the chops to make it into any of my newsletter services at the moment. However, if you look at the company’s forecast earnings and sales for the next several quarters, who knows? That could very well change.

For this upcoming earnings announcement—due on April 8—the company is headed towards a 4.2% year-on-year drop in sales and a 54.5% plunge in earnings. Farther out, the waters get a little clearer:

  • Q2: A 1.2% decline in sales and 42.9% earnings growth.
  • FY 2014: A 0.1% rise in sales and 9.1% earnings growth.
  • FY 2015: A 5.4% gain in sales and 69.4% earnings growth.

It’s also telling that the analyst community has been revising its estimates up over the past few months—such revisions are usually indicative of strong earnings surprises.

So while Alcoa Inc. still has a ways left to go before it gets my official seal of approval, today’s announcement could mark a turning point for the troubled aluminum play.


Louis Navellier

Louis Navellier

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