ALCOA INC. $14 (New York symbol AA; Conservative Growth Portfolio, Resources sector; Shares outstanding: 1.0 billion; Market cap: $14.0 billion; Price-to-sales ratio: 0.7; Dividend yield: 0.9%; TSINetwork Rating: Average; www.alcoa.com) is one of the world’s largest aluminum producers. Its customers are mainly in the aerospace, automotive and construction industries.
The company produced 12.0% more raw alumina ore in its latest quarter than a year ago. That helped offset a 5% drop in selling prices.
That’s why Alcoa’s revenue rose 14.6% in the three months ended September 30, 2010, to $5.3 billion from $4.6 billion a year earlier. The higher revenue helped spur a 31.5% jump in Alcoa’s earnings, to $96 million from $73 million. Earnings per share rose 28.6%, to $0.09 from $0.07, on more shares outstanding. These figures exclude several unusual items, including repair costs after a flood damaged the company’s smelter in Spain.
In response to the recession, Alcoa cut its workforce by 16%, closed unprofitable plants and improved its efficiency. In the first nine months of 2010, these moves cut its raw-material costs by $2.2 billion. That should rise to $2.5 billion for the full year. As well, Alcoa has cut its operating expenses by $431 million. It aims to save $500 million for all of 2010.
Because of these savings, Alcoa should earn $0.52 a share in 2010. The stock trades at a high 26.9 times that estimate. However, the company’s 2011 earnings could rise to $1.07 a share. That would give the stock a more reasonable p/e ratio of 13.1.
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