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Fundamental analysis: ALCOA CORPORATION(#AA)


Alcoa Corporation is an American industrial corporation. It is the world's eighth largest producer of aluminum, with corporate headquarters in Pittsburgh, Pennsylvania. Alcoa conducts operations in 10 countries


⚡️ Growth factors:

  • Alcoa could benefit from a structural shift in the aluminum market, driven by China's decarbonisation policies and a 45 million tonne production cap, which will result in aluminum demand outstripping supply in 2023.

  • Alcoa expects demand for steel to remain strong and a double digit growth for the near future

  • Alcoa's average aluminium price increased by 60% which helped the company paying down $750m of debt in Q2 2021.

  • Alcoa expected its "value-add products" business line (e.g. slab, foundry and rods) to perform significantly better, as last year the major slump was due to a reduction in the Automotive segment

  • Since 2020, the company has been demonstrating positive dynamics of revenue growth and loss reduction. Making a profit at the end of 2021 can be an excellent driver of growth in the value of shares.

  • Major analysts lately confirmed a "buy" rating

📖 Financial indicators:

  • Return vs Market: AA exceeded the US Market which returned 32.6% over the past year, AA +165.5%

  • Significantly Below Fair Value: AA is trading below fair value by more than 20%

  • Earnings Trend: AA has become profitable over the past 5 years, growing earnings by 4.1% per year.

  • Short Term Liabilities: AA's short term assets ($4.2B) exceed its short term liabilities ($2.7B)

  • Long Term Liabilities: AA's short term assets ($4.2B) do not cover its long term liabilities ($6.3B)

  • Debt Level: AA's debt to equity ratio (38.4%) is considered satisfactory

  • Reducing Debt: AA's debt to equity ratio has increased from 2.3% to 38.4% over the past 5 years.

  • Debt Coverage: AA's debt is not well covered by operating cash flow (5.6%)

  • Interest Coverage: AA's interest payments on its debt are well covered by EBIT (5.3x coverage)


OTB Global Investments

21 July 2021


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