Markets
KRA

Arconic (ARNC) Q4 Earnings: What's in Store for the Stock?

Arconic Inc.ARNC is slated to release its fourth-quarter 2016 results after the bell on Jan 31.

Arconic, formerly known as Alcoa Inc., is a global leader in multi-material, precision engineered products and solutions for a variety of industries.

The separation of Alcoa Inc. into two independent, publicly traded companies - Arconic Inc. and Alcoa Corporation - was completed and became effective on Nov 1, 2016. Alcoa Inc. changed its name to Arconic Inc. on Oct 31, 2016 in connection with its business separation.

Let's see how things are shaping up for this announcement.

Arconic Inc. Price and EPS Surprise

Arconic Inc. Price and EPS Surprise | Arconic Inc. Quote

Factors to Consider

Arconic holds strong positions in attractive markets. The company is seeing healthy demand trends in the aerospace market (accounts for roughly 40% of the company's total revenues). The company makes high performance, engineered products and solutions for airframe structures and aero engines. It holds the number one market position in aluminum sheet and plate for the aerospace industry globally.

Arconic is actively pursuing its aerospace expansion strategy. The company recently sealed a contract valued roughly $1 billion for the supply of proprietary alloys and plate products for every Airbus platform. The multi-year contract makes Arconic sole supplier to Airbus for specific applications. The company has also landed two new pacts with Airbus for the supply of 3D-Printing metal parts. The agreements further strengthen Arconic's position in the fast-growing metal 3D printing space.

Arconic is also well placed to capture the growing demand for aluminum sheet stemming from the transition of the North American auto industry to lightweighting. It is the market leader in providing aluminum sheet to the North American automotive market. The company leverages its breakthrough Micromill technology that manufacture the most advanced aluminum sheet on the market. The Micromill process produces an aluminum alloy that has 40% greater formability and 30% greater strength than the current automotive aluminum.

Arconic is also focusing on cost reduction and productivity improvements across its businesses, which should lend support to its bottom line in the fourth quarter. The company is on track to deliver $650 million in productivity improvement for full-year 2016. Arconic is also targeting net savings of around 2% of revenues in 2017.

Arconic has outperformed the Zacks categorized Mining-Non Ferrous industry year to date. The company's shares have gained around 23.3% over this period, compared with roughly 22.5% gain recorded by the industry.

However, Arconic is witnessing softness across certain end-use markets. The company is seeing weakness in the heavy-duty truck and trailer market in North America. The non-residential building and construction market is also not out of the woods. Arconic is also seeing pricing pressure across some of its businesses. Its high balance sheet leverage is another concern.

Earnings Whispers

Our proven model does not conclusively show that Arconic is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below:

Zacks ESP: The Earnings ESP for Arconic is -18.18% as the Most Accurate estimate stands at 9 cents while the Zacks Consensus Estimate is pegged at 11 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Arconic currently carries a Zacks Rank #2 which when combined with a negative ESP, makes surprise prediction difficult.

We caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks That Warrant a Look

Here are some stocks in the basic materials space that you may want to consider, as our model shows they have the right combination of elements to post an earnings beat this quarter:

IAMGOLD Corporation IAG has an Earnings ESP of +100% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

Cliffs Natural Resources Inc. CLF has an Earnings ESP of +26.09% and a Zacks Rank #2.

Kraton Corporation KRA holds a Zacks Rank #2 and has Earnings ESP of +3.23%.

The Best Place to Start Your Stock Search

Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks - absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Kraton Corporation (KRA): Free Stock Analysis Report

Iamgold Corporation (IAG): Free Stock Analysis Report

Cliffs Natural Resources Inc. (CLF): Free Stock Analysis Report

Arconic Inc. (ARNC): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

KRA CLF ARNC IAG

Other Topics

Earnings Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More