Alcoa (AA) shareholders are in desperate need of some positive news when the company reports this quarter fiscal 2018 earnings results after the closing bell Wednesday.
Shares of the aluminum giant have been under heavy selling pressure, plunging some 8% in the past five days and more than 17% in one month. Investors have begun to assess the extent to which higher alumina prices — a key driver of Alcoa’s earnings in 2018 — could be coming to an end. But with the stock down 34% year date, compared to the 8% rise in the S&P 500 index and the 9% year-to-date decline in the SPDR S&P Metals & Mining ETF (XME).
Is there any opportunity for Alcoa to make a comeback?
The US-China trade war has, understandably, scared metals investors away as China — the world’s largest consumer of aluminum — has scaled back its demand. Not only has China’s economic data turned negative, there is also concern that Alcoa could suffer from domestic oversupply of inventory. And when factoring the effects of tighter monetary policy by the Fed, this makes for a dreadful combination for a stock that’s now hovering near 52-week lows.
For the quarter that ended September, consensus estimates calls for the New York-based company to earn 56 cents per share on revenue of $3.34 billion. This compares to the year-ago quarter when earning were 72 cents per share on $2.96 billion in revenue. For the full year, ending in December, earnings are projected to rise 32% year over year to $3.97 per share, while revenue of $13.6 billion would rise 16.7% year over year.
Beyond the top- and bottom-line numbers, on Wednesday analysts will look for commentary by management on what impact the US-China trade war might have on the business beyond 2019. More specifically, investors will look to see if Alcoa management can inject some optimism to offer a sense that the metal scare could be overblown. This is because, despite the recent selloff in the share price and other metal producers, its encouraging aluminum prices have held onto the $2,000 per metric ton level.
The price stability has been in large part to the fact that, unlike years, past, the industry hasn’t suffered from extreme surpluses. But things can change, as we have seen in recent months. Likewise, on Wednesday, Wall Street will want some sense from Alcoa as to the legitimacy of investors' fears about declining prices.
The good news is, Alcoa’s balance sheet and overall financial position remains solid. And from a valuation perspective, the stock looks attractive here if projecting out to the next 12 to 18 months. The recent decline in Alcoa shares, which have underperformed that of U.S. Steel Corporation (X) and AK Steel (AKS), presents a solid buying opportunity. To the extent Alcoa can project any sign of confidence about fiscal 2019, these shares — despite falling near 52-week lows — could be ready to rebound.