On November 1, 2016, Arconic spun off its bulk aluminum business (Alcoa) as a separate company. Each investor received one Alcoa Corp. share for every three ARNC shares they owned.
Since the split, Alcoa has jumped 82% while Arconic is up 17%. We feel both stocks have long-term gains ahead as they realize more benefits from the spinoff.
ALCOA CORP. $41 (New York symbol AA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 184.3 million; Market cap: $7.6 billion; Price-to-sales ratio: 0.7; No dividends paid; TSINetwork Rating: Average; www.alcoa.com) mines the mineral bauxite and refines it into bulk aluminum products like rolled sheets and plates.
In the three months ended June 30, 2017, Alcoa’s sales jumped 23.1%, to $2.9 billion from a comparable $2.3 billion a year earlier. That’s mainly because of higher shipments and selling prices. The new company earned $116 million, or $0.62 a share, in the quarter. That’s a big improvement over its year-earlier loss of $44 million, or $0.23 a share. Alcoa ended the quarter with cash of $954 million, or $5.18 a share. Its
The new company earned $116 million, or $0.62 a share, in the quarter. That’s a big improvement over its year-earlier loss of $44 million, or $0.23 a share.
Alcoa ended the quarter with cash of $954 million, or $5.18 a share. Its longterm debt of $1.4 billion is a manageable 18% of its market cap. The company recently announced that it would partially re-open its Warrick smelter in Indiana. This facility makes rolled aluminum for the food and beverage industry. Alcoa closed this plant in 2013, but rising aluminum prices have improved the plant’s viability. Re-starting production will cost between $30 million and $35 million. However, the company expects to realize $25 million in tax benefits. Excluding unusual items, Alcoa will probably earn $2.48 a share this year. The stock trades at a reasonable 16.5 times that estimate. Alcoa is a buy.
The company recently announced that it would partially re-open its Warrick smelter in Indiana. This facility makes rolled aluminum for the food and beverage industry. Alcoa closed this plant in 2013, but rising aluminum prices have improved the plant’s viability.
Re-starting production will cost between $30 million and $35 million. However, the company expects to realize $25 million in tax benefits.
Excluding unusual items, Alcoa will probably earn $2.48 a share this year. The stock trades at a reasonable 16.5 times that estimate.
Alcoa is a buy.
ARCONIC INC. $26(New York symbol ARNC; Conservative Growth Portfolio, Manufacturing & Industry sector; shares outstanding: 441.0 million; Market cap: $11.5 billion; p/s ratio: 0.9; Divd. yield: 0.9%; TSINetwork Rating: Average; www.arconic.com) is a leading maker of engineered aluminum products for cars and jet engines.
Based on pro-forma figures provided by Arconic, it earned $165 million in the quarter ended June 30, 2017, unchanged from a year earlier. Per-share earnings slipped to $0.32 from $0.33 on more shares outstanding. Revenue improved 0.8%, to $3.26 billion from $3.23 billion.
Activist investor Elliott Management now owns 13.2% of the company and wants Arconic to cut costs and boost profit margins. Thanks in part to that pressure from Elliott, a new plan to improve efficiency reduced the company’s selling, general and administrative expenses by $32 million in the second quarter of 2017.
The stock trades at 24.3 times the $1.07 a share Arconic should earn in 2017. The $0.24 dividend yields 0.9%.
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