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Alcoa (AA) Earnings Preview

by | Jul 11, 2021

Alcoa (AA) reporting earnings on Thursday after the close with the Street looking for $1.28 on $2.62B in revenue. Next quarter is guided to $1.39 on $2.69B while the FY is $4.27 and $10.82B. Shares have closed lower in two of the last three and four of the last six with an average closing move of 6% and a max move of 12.39%. The current implied move is 4.75%. Options flow has been very bullish since the beginning of June with buyers recently focused on the August $36/$43 call spread, September $38 calls, and August $40 calls while put sales popular in September. The $6.8B company trades 8.3X earnings, 0.7X sales, and 44.5X FCF. AA should benefit this quarter from better price realizations as spot prices have surged and the outlook for aluminum improves. They are coming off of a record quarter as they control production costs and improve the balance sheet overall. They have longer-term tailwinds from a continued recovery in the macro environment which will benefit their value-add products. Analysts have an average target for shares of $37 with a Street High $50. Jefferies positive on 7/1 citing a better outlook for alumina overall while Citi raising estimates on 6/14 due to surging regional premiums. Deutsche Bank positive in May as they think a compelling structural story is building in aluminum. The nationwide capacity cap in China, recovering global demand and increasingly ambitious global decarbonization policies will lead to structurally higher prices over the next 5-10 years. On the chart, shares forming a bull wedge on the weekly after pulling back to the 21-week MA. AA has room to run above $38.50 and small gap to $41.50. The longer-term measured move is out to $55.

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