AA Stock Report

2-Year Price History

A Word Of Caution

Alcoa, Incorporated (AA) has experienced a very significant drop in earnings and/or earnings estimates. In and of itself this drop in earnings could be an indication of greater troubles within the company.

Please take a moment to look at the RazorWire feed on the right hand side of the report to find more information regarding the company's dropoff in performance. Each time Alcoa, Inc. is mentioned on business television recently should be displayed. This helps bring you up to date on any major issues they are facing right now.

Therefore, (and as always), check additional sources and available information regarding AA before making an investment decision.

Ockham's Rating

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AA Revenue

As a value investing shop, we are interested in seeing how AA's revenues measure up against past performances. One easily understandable way of doing that is to compare Price to Sales per share levels over a given time frame. Assuming it is available, Ockham prefers to look at ten years of history (for this stock there are 10 years of history available) and we weigh recent years more heavily. This allows us to find weighted average historical high and low Price to Sales ratios, which give us a better idea of the stock's current underlying value. Using this method, we have established a high range for Price to Sales of 1.28x and the low end of the range at 0.66x.

With respect to these historically rational metrics, notice that the current Price to Sales per share ratio for AA of 0.26x is well below its normal historic Price to Sales levels. At a price of $9.86, AA is 74% below where we would expect to see it. Clearly, this stock looks undervalued compared to historical levels, at least on a Price to Sales basis. This will positively affect our analysis because it is rare to find a stock this far below historical norms, and we would expect some price appreciation to bring this metric back towards a more normal range.

AA Cash Earnings

As a value investment framework, Ockham Research is similar to a private equity firm in terms of our valuation methods. We are always on the lookout for value in the form of sales and cash numbers. In the case of AA, Ockham views their current Cash Earnings as significantly above its historical average multiple of Cash Earnings. Looking at the last 10 years we can get a good understanding of what investors have grown to expect from AA. For example, AA's Cash Earnings ratio per share has fluctuated between 6.83 and 15.80 over this historical timeframe. This range is based upon a proprietary weighted methodology at Ockham, but can clearly show an investor where AA is with respect to prior business periods.

So what does this tell us about AA in particular? Basically, we would value the current level of Cash Earnings per share (which is at 29.00) as significantly overvalued. Just by looking at the last closing price of AA, which was $9.86, we can see that compared to the historical high Price to Cash Earnings levels we calculated, the market has already rewarded AA with a higher stock price. So basically, we don't view this level of Cash Earnings or stock price as compatible with a long term value at this point. Just remember, that does not mean that AA may not have other merits with which to find a good investment opportunity, it just means that we would prefer to see either an increase in Cash Earnings or a decrease in stock price before we would become bullish on this metric.

AA Dividends

A positive Ockham rating does not require a company to pay out an inviting dividend or a dividend at all. However, we believe dividends provide a useful measure of a company's inherent expectations.

Comparable to our analysis of Sales and Cash Earnings per share, we examine dividend yields from AA against the historic high and low levels over an available data range. Because AA has an established history of paying a dividend to shareholders, there is value in comparing recent dividends to historical dividends. In AA’s case, the estimated annual dividend is $0.12 producing a current dividend yield of 1.22%. The highest dividend yield from AA in recent history was 10.00% while the lowest dividend yield was 0.36%. While it is quite common for a growth stock to pay no dividend at all, but for a mature company such as AA that has a history of paying dividends it is disappointing to see their dividend yield drop so significantly. At this time, the current dividend yield is 76.45% below the median yield.