The Razor's Edge
2-Year Price History
Recent Price
(12/3/2008)
$9.29
52-Week Price
$6.80 - $44.77
Market Capitalization
$7.4 Billion
Most Recent Dividend
$0.68
About Alcoa, Inc.
Alcoa, Incorporated is considered to operate in the Basic Materials
sector. They specifically operate in the Aluminum
business segment contained within the Metals & Mining industry.
The Company is engaged in the production and management of primary aluminum, fabricated aluminum and alumina combined, through its active and growing participation in all major aspects of the industry.
A Word Of Caution
Alcoa, Incorporated (AA) has experienced a very significant loss in market value recently. Clearly this drop in price will have an impact on the valuation but the recent events that caused the drop may have not been fully factored into our analysis yet. When a stock loses value very quickly it could be a sign that there is a fear of bankruptcy.
Of course, you may proceed to review our research report for this security, but please be aware that our model may not reflect significant factors surrounding this company.
Therefore, (and as always), check additional sources and available information regarding AA before making an investment decision.
Ockham's Rating
The rating for Alcoa, Incorporated (AA) is unchanged this week as we reaffirm our Greatly Undervalued rating. We have maintained this position since it was upgraded to this rating in the report written on 09/27/2008. AA had been rated Undervalued before 09/27/2008. While this is a reaffirmation of our Greatly Undervalued rating, we would like to highlight some of the important changes in price and earnings expectations for AA.
Starting with the basics, the price of AA rose from $8.44 as of 11/22/2008 to a price of $10.76 as of 11/29/2008. This increase does reduce the attractiveness of AA, but an increase of 27.49% is not substantial enough to warrant a downgrade at this time.
Also, there have been no meaningful adjustments in earnings expectations to report in the last week.
AA Stock Evaluation
In this week's report, we are reiterating our Greatly Undervalued rating on AA. In the last week there has been no revisions made to earnings expectations, but our valuation has obviously been influenced by the increase in price of 27.49%. While that price increase has not caused a downgrade this week, we will continue to closely monitor the fundamentals in case a future change in rating is warranted. The complete fundamental analysis of AA follows below.
AA Revenue
For a long time, value investors have used the current share price relative to sales per share levels as an important valuation tool. We utilize a historical weighted average methodology that treats recent years more importantly in the calculation. When looking at AA through this framework, we can see that our weighted average historical high and low Price to Sales per share ratios over the last 10 years are 1.31x and 0.68x respectively.
Utilizing this range we can see that AA’s current Price to Sales per share ratio of 0.28x is significantly below its average levels historically. In fact, with a current price of $10.76, AA is a full 72% below its average Price to Sales ratio at comparable sales levels. This is a rare occurrence and, when taken in context of the other areas of our analysis, can be a strong positive for our outlook for AA.
AA Cash Earnings
Cash Earnings is always one of the most important factors to review for a company and, more importantly, an investment in a stock. AA is significantly below 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 6.49 and 12.35 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 with AA's current price (latest close of $10.76) and most recent level of Cash Earnings reported, we see significant opportunity from a value perspective. At its current price level, AA is 79% below its average level of Price to Cash Earnings on a historical basis. This means that investors were willing to pay for a much higher stock price than currently for the same level of Cash in the past, on a relative basis. There are a couple of important things to remember, however. First, value doesn't exist in a vacuum. So if the market doesn't recognize this value, even a great disparity in Price to Cash Earnings cannot force an immediate stock price reaction. Second, patience is key when looking at securities that have reached these levels of Price to Cash Earnings versus their historical norms. So be patient with AA.
AA Dividends
A strong dividend payment history is looked upon as a favorable characteristic on a company’s future and potentially can receive a positive Ockham rating. That being said, we don't require dividend payments for company's whose management has elected to forgo them entirely.
When reviewing dividend yields for AA, we compare the historic high and low levels over the past, which is similar to our evaluation of Sales and Cash Earnings per share. Paying a dividend is not necessary for any company, but changes in dividend often can lend clues as to the health of the business. A rising dividend is a strong sign for an established company, as it reflects management's confidence in the company. AA’s estimated annual dividend is $0.68 resulting in a current dividend yield of 6.32%. The highest dividend yield from AA over recent history was 10.00% while the lowest dividend yield was 1.15%. AA has shown confidence by hiking up the dividend yield to 13.36% above the historical median.
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