Alcoa Inc. AA reports preliminary financial results for the quarter ended 2012-09-30.
Alcoa Inc. recently reported its preliminary financial results based on which we provide a unique peer-based analysis of the company. Our analysis is based on the company's performance over the last twelve months (unless stated otherwise). For a more detailed analysis of this company (and over 40,000 other global equities) please visit www.capitalcube.com.
Alcoa Inc.'s analysis versus peers uses the following peer-set: Norsk Hydro ASA (NHY), Hindalco Industries Ltd. (500440-IN), National Aluminum Co. Ltd. (532234-IN), Alumina Ltd. ADS (AWC), Aluminum Corp. of China Ltd. ADS (ACH) and Kaiser Aluminum Corp. (KALU). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
Quarterly (USD million) | 2012-09-30 | 2012-06-30 | 2012-03-31 | 2011-12-31 | 2011-09-30 |
---|---|---|---|---|---|
Revenues | 5,833.0 | 5,971.0 | 6,015.0 | 5,992.0 | 6,455.0 |
Revenue Growth % | (2.3) | (0.7) | 0.4 | (7.2) | (2.6) |
Net Income | (143.0) | (2.0) | 94.0 | (192.0) | 171.0 |
Net Income Growth % | N/A | (102.1) | N/A | (212.3) | (47.4) |
Net Margin % | (2.5) | (0.0) | 1.6 | (3.2) | 2.6 |
ROE % (Annualized) | (4.2) | (0.1) | 2.7 | (5.4) | 4.5 |
ROA % (Annualized) | (1.4) | (0.0) | 0.9 | (1.9) | 1.7 |
Valuation Drivers
Alcoa Inc.'s current Price/Book of 0.7 is about median in its peer group. The market expects AA-US to grow faster than the median of its chosen peers (PE of 127.5 compared to peer median of 19.3) and to improve its current ROE of -1.7% which is below its peer median of 1.5%. Thus, the market seems to expect a turnaround in AA-US's current performance.
The company's profit margins are below peer median (currently -1.0% vs. peer median of 1.6%) while its asset efficiency is about median (asset turns of 0.6x compared to peer median of 0.7x). AA-US's net margin is less than (but within one standard deviation of) its five-year average net margin of 1.5%.
Economic Moat
Changes in the company's revenues are in-line with its peers (annual revenue changed by 18.6%) but its earnings performance has been better -- its annual earnings changed by 134.0% compared to the peer median of 78.0%, implying that it has better cost control relative to its peers. AA-US currently converts every 1% of change in revenue into 7.2% of change in annual reported earnings.
AA-US's return on assets is less than its peer median currently (-0.6% vs. peer median 1.3%). It has also had less than peer median returns on assets over the past five years (1.4% vs. peer median 2.9%). This performance suggests that the company has persistent operating challenges relative to peers.
The company's gross margin of 12.8% is around peer median suggesting that AA-US's operations do not benefit from any differentiating pricing advantage. In addition, AA-US's pre-tax margin is less than the peer median (-1.3% compared to 2.8%) suggesting relatively high operating costs.
Growth & Investment Strategy
While AA-US's revenues have increased more slowly than the peer median (-2.4% vs. 4.1% respectively for the past three years), the market currently gives the company a higher than peer median PE ratio of 127.5. The stock price may be factoring in some sort of a strategic play.
AA-US's annualized rate of change in capital of 1.3% over the past three years is less than its peer median of 7.7%. This below median investment level has also generated a less than peer median return on capital of -0.2% averaged over the same three years. This outcome suggests that the company has invested capital relatively poorly and now may be in maintenance mode.
Earnings Quality
AA-US reported relatively weak net income margins for the last twelve months (-1.0% vs. peer median of 1.6%). This weak margin performance and relatively conservative accrual policy (8.2% vs. peer median of 2.4%) suggest the company might likely be understating its net income, possibly to the extent that there might even be some sandbagging of the reported net income numbers.
AA-US's accruals over the last twelve months are positive suggesting a buildup of reserves. In addition, the level of accrual is greater than the peer median -- which suggests a relatively strong buildup in reserves compared to its peers.
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