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Chandan Dubey
Chandan Dubey
Articles (150) 

Alcoa in Numbers

March 06, 2012 | About:

This is part three of my coverage on Alcoa. The previous two parts were Alcoa and its CEO and Alcoa’s business during the crisis years (2008-2010).

This article will tell the story of Alcoa in numbers. We will look at the business performance, profitability and the balance sheet.

Business performance

Item (in $ million)2008200920102011
Gross margin (%)17.68.318.317.9
Working cap8711,6081,6331,700

The improvements are visible across all figures. Alcoa has better OCF, FCF and working capital. It also has a much lower capital expenditure than before. The improvements are quite drastic if one compares to the year 2008 when the new CEO took over the company.

Balance sheet

Item (in $ million)2008200920102011
Current assets8,1507,0226,8697,713
Total assets37,82238,47239,29340,120
Current liability7,2795,4145,2366,013
LT debt8,5098,9748,8428,640
Pension benefits-5,8595,5385,844
Other LT liab7,3811,8891,7642,438
Total liability26,08726,05225,68226,276
Tangible BV6,1446,7797,9808,593


Gross margin17.68.318.317.9
Op margin2.9-8.12.66
Net margin-0.28-
Tax rate43.18-27.0123.99

Shareholder return



It is easy to value the company on a DCF basis but frankly it does not make a lot of sense to me for a cyclical stock. For a cyclical stock I rather trust the P/S analysis.

Using the last 10 years' data we see that the market has paid between $1.5 and $0.3 for each dollar in sales. The current P/S ratio of 0.44 gives you a downside of 30% and an upside of 300% from the current price.

Couple this with the fact that Alcoa is a much better company in terms of almost all measures we saw above and we are getting a very good deal at the moment. The company has a better balance sheet, a much larger TBV, less debt and the FCF has been trending upwards since the new CEO took over. At some point things will hopefully get back to normal and the stock price will recover. I will keep adding until that day comes.

The company has not seen this share price (around $9) since April 2009, apart from small dips in between. Just before the previous leg of the bull run it was trading at $18 (April 2011) and dropped to a low of $8.45 around October 2011. The shares have not recovered much since then. You have to ask yourself, with all the scary things that you can think of about Alcoa, is the situation worse than it was in the 2009 crisis? If no, the much improved company should not be trading near the same price.

Additional disclosure: I bought 100 shares of Alcoa as a starting position yesterday.

About the author:

Chandan Dubey
I invest because I want to be free by the time I reach 40 years of age i.e., 2025. My investment style is to find a small number of bets with large margins of safety. I pay a lot of attention to management and their incentive. Ideally, I like to buy owner operator businesses. I am fortunate to have a strong inclination towards studying. I aid my financial understanding by extensive reading in psychology, economic, social sciences etc.

Rating: 4.5/5 (13 votes)


Softdude2000 - 5 years ago    Report SPAM
>>The improvements are quite drastic if one compares to the year 2008 when the new CEO took over >>the company.

Yes, outstanding shares increased only by 25% or more from 2008.

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GuruFocus has detected 3 Warning Signs with Alcoa Corp $AA.
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