Century Aluminum (CENX) Q4 Earnings: Is a Beat in Store?

Century AluminumCENX is scheduled to report fourth-quarter 2016 results after the closing bell on Feb 23.

Century Aluminum posted a bigger loss on a reported basis in the third quarter of 2016. Adjusted loss for the quarter was much wider than the Zacks Consensus Estimate. Revenues tumbled year over year on lower shipments, but beat expectations.

The company has outperformed the Zacks Consensus Estimate in three of the trailing four quarters while missing in one.

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

Century Aluminum Company Price and EPS Surprise

Century Aluminum Company Price and EPS Surprise | Century Aluminum Company Quote

Factors to Consider

Century Aluminum, in its third-quarter call, said that while demand has been relatively good, supply (excluding China) remains constrained. However, the growing level of imports from China has been negatively affecting value-added product premiums. The company believes the market is still adversely affected by the large amount of overcapacity and overproduction in China.

Century Aluminum has outperformed the Zacks categorized Metal Procurement & Fabrication industry in the past three months. The company's shares have gained around 50.8% over this period, compared with roughly 7.2% gain recorded by the industry.

Century Aluminum is implementing a number of actions to reduce costs and preserve cash amid a still challenging operating environment. The company anticipates achieving annualized savings of $40-$65 million through these measures that include operating expense reductions.

Century Aluminum should also benefit from acquisitions and value-added investment projects. The company also has low financial leverage.

However, Century Aluminum is still faced with a difficult pricing environment. Aluminum prices, which have recovered somewhat of late, still remain under pressure due to supply glut. Startups and restarts in China led to a roughly 3% rise in global primary aluminum production in the third quarter. The company expects significant capacity additions from China in the fourth quarter which will outpace consumption and further increase the country's already oversupplied position.

Moreover, higher prices of alumina (which the company purchases from third-party suppliers) due to increased demand from Chinese smelter production growth affected the company's earnings in the third quarter and is expected to remain a headwind in the fourth.

Earnings Whispers

Our proven model shows that Century Aluminum is likely to beat earnings because it has the right combination of the two key ingredients.

Zacks ESP: The Earnings ESP for Century Aluminum is +62.50% as the Most Accurate estimate stands at a loss of 6 cents while the Zacks Consensus Estimate is pegged at a loss of 16 cents. A favorable Zacks ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Century Aluminum currently carries a Zacks Rank #2 (Buy). Note that stocks with a Zacks Rank of #1 (Strong Buy), 2 or 3 (Hold) have a significantly higher chance of beating earnings.

Conversely, sell-rated stocks (#4 or 5) should never be considered going into an earnings announcement.

The combination of Century Aluminum's Zacks Rank #2 and positive ESP makes us reasonably confident of an earnings beat.

Stocks That Warrant a Look

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

Intrepid Potash, Inc. IPI has an Earnings ESP of +20% and carries a Zacks Rank #2. You can see the complete list of today's Zacks #1 Rank stocks here .

Iamgold Corporation IAG has an Earnings ESP of +100% and a Zacks Rank #3.

Vale S.A. VALE has an Earnings ESP of +42.86% and carries a Zacks Rank #3.

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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.

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