Alcoa (AA) has caused quite a stir in trading today after announcing that it is acquiring titanium supplier RTI in a transaction valued at $1.5 billion. Many call the acquisition "expensive" because Alcoa is giving RTI shareholders 2.8315 shares of Alcoa for every share of RTI they own.
This values each RTI stock at about $41 dollars, which is much higher than the $27.21 price tag on the stock just Friday. This is the primary reason why RTI stock has surged about 40% higher in trading today, and is the same reason for why Alcoa stock has fallen over 5% so far today.
After acquiring RTI, Alcoa hopes too grow its value-added businesses as well as its aerospace portfolio. Alcoa CEO Klaus Kleinfeld says that this is in the company's interest, as RTI is tied into the attractive aerospace market. Kleinfeld also made it known that demand for titanium is the fastest growing metal segment in aerospace production.
This acquisition is well in line with what Alcoa does as a metal producer. Alcoa plans on turning RTI into a company with revenues of $1.2 billion and 25% profit margins by 2019, 33% more revenue and 44% wider profit margins than the company saw in 2014.
It is worth noting that RTI hasn't been looking great in terms of recent shifts to earnings expectations. Our EPS consensus for the quarter has gone down in the last 30 days. A month ago our consensus called for EPS of $0.34. Since then, it has gone down to $0.13. The company reports its earnings on 5/5/15.
Alcoa is a Zacks Rank #3 (hold). The company has had one positive and 10 negative estimate revisions in the last 60 days for the current quarter. Our EPS consensus for the current quarter was $0.29 sixty days ago, but has decreased since then. Our current EPS consensus for the current quarter calls for EPS of $0.25. Alcoa reports its earnings on 4/14/15.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.