ALCOA INC. $8.54 (New York symbol AA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.1 billion; Market cap: $9.4 billion; Price -to- sales ratio: 0.4; Dividend yield: 1.4%; TSINetwork Rating: Average; www.alcoa.com) continues to cut its bulk aluminum output in response to low prices. It’s also expanding its more profitable businesses, such as making parts for cars and airplanes.
Alcoa’s earnings fell 67.7% in 2012, to $262 million, or $0.24 a share. These figures exclude unusual items, such as gains on asset sales and costs to close plants. In 2011, the company earned $812 million, or $0.72 a share. Revenue fell 5.0%, to $23.7 billion from $25.0 billion. Aluminum shipments rose 3.2%, but average prices fell 11.7%.
The uncertain global economy will probably continue to dampen aluminum prices. However, Alcoa’s long-term outlook remains bright. It owns 25.1% of a joint venture that is building a new smelter in Saudi Arabia; a state-owned mining company owns the remaining 74.9%. This new plant, which should begin operating later this year, will have the lowest operating costs of all of Alcoa’s facilities.
The company feels that global aluminum demand will rise 7% for all of 2013, up from a 6% rise in 2012. Its ongoing cost cuts could push up its 2013 earnings to $0.61 a share. The stock trades at 14.0 times that forecast. The $0.12 dividend yields 1.4%.
Alcoa is a buy.
