Earnings Were a Warning: Stay Away From Alcoa Stock!

by Louis Navellier | January 11, 2014 8:01 am

Welcome to the Stock of the Day.

Alcoa AAEarnings season kicked off with a whimper when aluminum producer Alcoa (AA[1]) reported fourth-quarter results Thursday night. Alcoa stock was down on the news, but is it time to sell?

Let’s find out.

Company Overview

With over 120 years of experience under its belt, Alcoa is considered the world’s leading integrated aluminum company. The company has dozens of individual businesses spread across five key segments: Primary Metals, Flat-Rolled Products, Engineered Products and Solutions, Alumina and Other. Through these businesses, the company brought in $24 billion in sales last year. Alcoa employs 61,000 worldwide in over 200 locations across over 31 countries.

Industry Breakdown

There are 43 companies in the Aluminum industry. Of those, Alcoa is ninth in terms of market cap. Most notably, the company is ranked third for both its annual dividend yield (1.7%) and long-term growth rate (38.4%). Alcoa also comes in at fifth for Price/Earnings to Growth ratio and seventh for return on equity.

However, don’t be fooled into thinking AA is a good buy right now: This company falls short on sales growth. Alcoa’s main competitor is Aluminum Corporation of China Ltd. (ACH[2]), but it is also rated a sell. So I wouldn’t be looking for buying opportunities in aluminum right now.

Earnings Rundown

Alcoa swung to a loss in the fourth quarter due to lackluster sales and a $1.73 billion charge related to its earlier acquisitions of Alumax and Reynolds Metals. The company reported a net loss of $2.3 billion, or a loss of $2.19 per share. Excluding special items, adjusted earnings were 4 cents per share. Analysts had predicted 6 cents EPS, so Alcoa posted a 33% earnings miss.

Compared with Q4 2012, net sales fell 5.3% to $5.59 billion as aluminum prices fell. While this topped the $5.38 billion consensus sales estimate, the minor sales surprise wasn’t enough to make up for what was otherwise a poor report.

Current Ratings

Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Over the past few years, this stock has stayed firmly in sell territory. To start, its fundamentals are mediocre. While earnings surprises, analyst earnings revisions and cash flow receive decent marks, the other five fundamentals are quite weak. So AA receives a C for its Fundamental Grade. Above all else, what has kept this stock down is its abysmal buying pressure–AA currently receives a D for its Quantitative Grade.

Bottom Line: As of this posting I consider AA a D-rated sell, and nothing in its latest earnings report encourages me to change this recommendation.

  1. AA: http://studio-5.financialcontent.com/investplace/quote?Symbol=AA
  2. ACH: http://studio-5.financialcontent.com/investplace/quote?Symbol=ACH

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