On Jan 14, we reaffirmed our Neutral recommendation on
). While healthy momentum across automotive and aerospace markets
is encouraging, we remain on the sidelines given the weak
aluminum price environment.
Alcoa swung to a loss in fourth-quarter 2013, reported on Jan 9,
on hefty goodwill impairment charges. Adjusted earnings missed
the Zacks Consensus Estimate. Sales fell on weak aluminum pricing
but beat expectations. The company expects aluminum demand to
rise 7% this year.
Alcoa, a Zacks Rank #3 (Hold) stock, is seeing strength in
aerospace and automotive markets. The company, which makes
aircraft fasteners, is witnessing healthy airline fundamentals.
It expects 7% to 8% growth in the aerospace market in 2014,
backed by strength in the commercial segment, higher air travel
demand, new aircraft orders and strong order backlog.
The automotive industry is also showing strength with U.S. auto
sales increasing 8% year over year to 15.6 million units last
year. Alcoa sees significant growth of aluminum use in the auto
sector this year as automakers increasingly look for the metal as
a cost-effective mean to boost performance, safety, durability
and fuel efficiency of their vehicles.
Moreover, Alcoa remains committed to move down its cost curves in
its upstream businesses and drive profitability in its midstream
and downstream businesses. The company has taken up a number of
restructuring measures (including closure of smelters) and is
aggressively pursuing cost-cutting actions.
However, Alcoa continues to grapple with weak aluminum pricing.
London Metal Exchange (LME) cash price fell 7% in the fourth
quarter, hurting the company's sales in the process. LME aluminum
prices dropped to a four-year low during the quarter given the
oversupply of the metal in the market.
In addition, Alcoa is still witnessing softness across building
and construction and commercial transportation markets. It
expects weakness in non-residential building and construction
market to persist in Europe and expects a 2%-3% decline this
year. Our view takes into account these factors.
Other Stocks to Consider
Other companies in the mining industry worth considering include
General Moly, Inc.
Atlatsa Resources Corp.
Tahoe Resources Inc.
). While General Moly holds a Zacks Rank #1 (Strong Buy), both
Atlatsa Resources and Tahoe Resources retain a Zacks Rank #2
ALCOA INC (AA): Free Stock Analysis Report
ATLATSA RESRCS (ATL): Free Stock Analysis
GENERAL MOLY IN (GMO): Free Stock Analysis
TAHOE RESOURCES (TAHO): Free Stock Analysis
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