Alcoa (AA) Shares Touches a Fresh 52-Week High at $17.36

Shares of Alcoa Inc. (AA) touched a new 52-week high of $17.36 on Sep 4. The stock closed a notch lower at $17.10 at the end of trading, yesterday.
Alcoa has delivered a solid one-year return of about 120% and year-to-date return of roughly 62%, outperforming the S&P 500. Average volume of shares traded over the last three months is around 14,899.5K.

Alcoa has beaten the Zacks Consensus Estimate three times in the trailing four quarters with an average surprise of 42.12%.

What’s Driving Alcoa Up?

Alcoa’s second-quarter 2014 adjusted earnings shot up 157% to 18 cents per share from 7 cents earned in the year-ago quarter. Strong results from its downstream and primary metals businesses, aided by higher aluminum pricing led to the improved results.

Alcoa’s adjusted second-quarter earnings outpaced the Zacks Consensus Estimate by a healthy 38.46%. Moreover, the company expects aluminum demand to rise 7% this year.

Alcoa, a Zacks Rank #3 (Hold) stock and a prominent mining company along with Aluminum Corporation of China Limited (ACH), is seeing strong momentum in the automotive and aerospace markets. The automotive industry is expected to offer significant opportunities this year and beyond. Alcoa reiterated its expectations of 8%–9% global growth in the aerospace sector in 2014 on the back of strong demand for both large commercial aircraft and regional jets.

Alcoa’s growth forecast for other markets are – automotive (1%-4%), packaging (2%-3%), and commercial building and construction (4%-6%). Alcoa raised its 2014 expectation for the North America commercial transportation market to a range of 10% to 14%, from a previous range of 5% to 9%, partly due to rising truck orders and backlogs.

Moreover, the company’s acquisition of jet engine parts maker Firth Rixson for $2.85 million will strengthen its robust aerospace portfolio, with a wide range of multi-material, value-added jet engine components. The acquisition is expected to contribute $1.6 billion in incremental revenues and $350 million in earnings before interest, tax, depreciation and amortization (:EBITDA) in 2016.  

The company also announced two organic investments in its Power and Propulsion (APP) business in the Engineered Products and Solutions segment totaling $125 million to meet increasing demand for next-generation jet engine components. APP revenues are expected to reach $2.2 billion in 2016.

In Alcoa’s Global Rolled Products segment, the automotive expansion in Davenport, IA, is complete and will continue to ramp-up production in the third quarter to cater to the growing demand for aluminum intensive vehicles. Alcoa’s second automotive expansion in Tennessee is expected to be complete in mid-2015. The amount of aluminum body sheet content in North American vehicles is expected to quadruple by 2015 and increase tenfold by 2025 from 2012 levels.

Moreover, Alcoa remains committed to cutting costs in its upstream businesses and driving profitability in its midstream and downstream operations. The company has implemented a number of restructuring measures and is aggressively pursuing cost-cutting actions. The company, during the second quarter, completed the curtailment of 147,000 metric tons of smelting capacity in Brazil at Sao Luis (Alumar) and Pocos de Caldas.

Key Picks from the Sector

Some better-ranked stocks in the mining sector include Kazakhmys PLC (KZMYY) and Orbite Aluminae Inc (EORBF). Both of these stocks carry a Zacks Rank #2 (Buy).