Alcoa (AA, Financial) is moving forward at a good pace to benefit from end-market growth. There’s continued extremely solid aerospace market and the growth is expected to be in 8% to 9% range for entire this year. Further, the large commercial aircraft market is witnessing even stronger 12.1% growth and Alcoa is diversifying into this business segment as a key driver of future sales growth.
Strong order books
The order books for the commercial jets are complete with 9 years of production. The fundamentals of the airline industry are excellent with 5.9% jump in the passenger demand, 3.1% increase in the cargo demand and 13.2% expansion of the regional jet market.
Alcoa has increased its projection in 2% to 4% range for Europe from the earlier projected range of zero to 4%. Moreover, the registrations also increased at a rate of 6.1% in Europe. Production increased 4.7%.
Growing across the globe
Exports increased 3.6% compared to the last year. In China, Alcoa has contracted the range to 7% to 10% from the earlier range of 6% to 10%. Year to date, exports increased 7.7% due to the expansion of the middle class and the new clean air act which is believed to take off nearly 6 million cars off the streets in China for not meeting the stated emission standards.
However, the European market is weak with the growth projection further reduced to minus 7 to minus 10 range from the last quarter projection of minus 1 to minus 5 growth range.
In Europe, Alcoa is witnessing 2% to 3% growth in packaging demand while for China this growth is believed to be in 8% to 12% range. This expansion in demand is primarily due to excellent can packaging demand from herbal tea and beer segments.
For industrial gas turbines segment, the global scale is in minus 8 to minus 12 range. And, the orders declined minus 29% worldwide compared to 2012, 2013 levels.
The Boeing has once again increased its build rate for Boeing 737 which is its typical aluminium plane to 52 per month and around 28 from 47 per month, and nearly 27.
Alcoa has unique capability of developing the largest aluminium lithium ingot, 50% bigger than any of its closest competitors. Further, it has become a worldwide leader in aluminium lithium extrusions with superior metallurgical expertise.
The commercial transportation market mainly the aluminium wheels portfolio is growing by 8%, and the dark blue piece, the core aluminum part of it, is rising even greater, roughly double. On an annual basis, on average, it increased by 50% particularly from 2010 to 2018.
Conclusion
The company was in loss earlier but now has returned to the path of profitability with forward P/E of 14.14 and better than the industry’s average P/E of 20.20. The PEG ratio of 0.43, below 1 is impressive and suggests healthy company growth and better than the industry’s average of 1.64. However, the profit margin of -9.65% is concerning and depicts no profit but loss. The revenue per share and diluted EPS of 20.44 and -2.15 respectively is poor and indicate loss in investor earnings.
Contrastingly, the quarterly revenue growth and quarterly earnings growth of 8.20% and 520.80% respectively is good and signifies robust growth in shareholder earnings. The current ratio of 1.81 is healthy and illustrates the robustness of the company’s balance sheet. Finally, the investors are advised to invest into Alcoa looking at the solid long-term growth prospects indicated by the CAGR for the next 5 years per annum of 47.72%, better than the industry’s average of 20.71% only and expect promising returns in a long run.
