This metals miner is going like a train

What is Alcoa?

The world’s leading producer of aluminium. Alcoa is also the biggest bauxite miner and alumina refiner worldwide, with some 61,000 employees in 31 countries. It sells flat-rolled sheet, alloy forgings, wheels, fastening systems and precision castings, as well as titanium and nickel-based alloy products. While it does about half its business in America, Europe and Brazil are its largest international markets. It has also been growing fast in China.

Why’s it so interesting for investors?

Alcoa supplies such a wide range of industries – aerospace, automotive, packaging, construction, commercial transport and consumer electronics – that it’s a great barometer for the health of the global economy. What’s more, the stock is a member of the elite 30-strong Dow Jones Industrial Average index. Its financial results always kick off the US quarterly reporting season, providing a handy economic bellwether for investors.

What’s the company’s history?

Aluminium was discovered in the early 1800s. It was pricey and rare: in the 1855 Paris Exhibition, small aluminium bars were exhibited next to the French crown jewels. In 1886 chemistry student Charles Martin Hall worked out how to extract aluminium from aluminium oxide and set up a smelting firm. It then expanded into fabrication, raw-material extraction and power generation. In 1907 it became the Aluminum Company of America. As the range of applications grew, so did the business. The name was shortened to Alcoa in 1999.

Who runs Alcoa?

Chairman and chief executive is Klaus Kleinfeld, who worked for Siemens for 20 years. He was paid more than $13m last year. Chief financial officer is Charles (Chuck) McLane Jr, who started with Alcoa in 2000 as investor relations chief.

How has trading been?

Going like a train, according to last week’s statement. Income from continuing operations for the three months to June 2011 jumped 138% compared with a year ago. It was another “strong quarter with solid revenue and income growth”, says Kleinfeld.

What about the outlook?

“The economic recovery is uneven,” says Kleinfeld. Yet “demand for aluminium continues to rise and so does growth in our major markets”, which “supports our projection that aluminium demand will grow 12% this year and will double by 2020”.

The analysts

Of the 18 analysts surveyed by Bloomberg, 55% are bulls, 28% rate the stock a ‘hold’, while just 17% are sellers. The average 12-month price target is $19.54. Top bull is John Redstone of Desjardins Securities, who sees the share price topping $28. Michael Gambardella at JP Morgan reckons investors should be ‘overweight’, and has a $22 target. Even the most bearish post-results forecast – from Tony Robson at BMO – is for just a 2% price drop. Our view: a good long-term bet. But as 2012 could be the year when profits peak, don’t buy it now.

The numbers

Stockmarket code: AA
Share price: $15.40
Market cap: $16bn
Net assets (published end-June 2011): $13.6bn
Net debt (published end-June 2011): $7.6bn
P/E (current year estimate): 11.9
Yield (prospective): 0.8%
Geographic shareholdings:
US 83%,
Canada 3.6%,
UK 3.5%

Directors’ dealings

Alcoa directors have been two-way traders in the company’s equity over the last 12 months. The biggest deal was the acquisition by directors of 318,651 shares on 20 January this year via the firm’s stock award scheme: see the table above. But although that takes the net number of shares acquired to 243,274, there have been several fair-sized sales too. All the trade dates are shown on the chart.

Director and Shares bought

Graeme Bottger: 3,760
William Christopher: 87,954
Nicholas Deroma: 14,316
Klaus Kleinfeld: 95,428
Charles McLane Jr: 87,954
John Thuestad: 11,939
Helmut Wieser: 17,300

Category: Market updates