AA Fundamental Research Investment Analysis, Alcoa, Inc.

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Alcoa, Incorporated (AA)

The Razor's Edge

2-Year Price History

Recent Price
(2/6/2009)
$8.40
52-Week Price
$6.80 - $44.77
Market Capitalization
$6.7 Billion
Dividend Yield
8.10%
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

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AA Revenue

As we have often noted, in our valuation methodology, "Cash is King." Well, it goes without saying that if a company cannot produce sales then there is no ability to generate cash flow. By that logic we look very closely at revenue numbers as our second most important factor in valuing a company's stock. We have established reasonable Price to Sales per share ranges based on historical data of the last 10 years. For, AA the high and low end of the Price to Sales per share ratios are 0.93x and 0.49x respectively.

Notice that AA's current Price to Sales per share ratio is 0.22x, which is quite a bit below what we consider a normal Price to Sales ratio for this stock. Given normal conditions and a price of $8.40, AA is 70% below where we would expect to see it. This will beneficially factor into our final analysis of AA as it is not often that this stock sinks to these levels.

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 their historical average multiples of Cash Earnings, as calculated by our proprietary analysis. It is incredibly important to understand that for AA, the current level of Cash Earnings compared to its historical levels helps identify where AA is in relation to what the investing community was willing to pay for this level of Cash Earnings in the past. With a historical high Cash Earnings per share ratio of 8.17 and a historical low Cash Earnings per share ratio of 4.53, an investor can relate where value becomes optimal.

So what does "significantly below" mean when we talk about Price to Cash Earnings numbers for AA? From the Ockham perspective, we are looking specifically at AA to see if the market is recognizing the huge disparity between AA's past stock price to Cash Earnings ratio to today's levels. At a difference of 85% below the average historical Price to Cash Earnings ratio, our view would be quite positive at this point. However, as with all metrics, we need to also take other factors into account when looking at AA. While we view better Cash Earnings metrics as very important, if the market is slow to identify this value, or if Cash Earnings were to fall from these levels, we would become more neutral in our stance.

AA Dividends

When determining a company's future prospects for success, Ockham Research sees analysis of dividend payments as a key additional factor. Even though it isn't imperative for AA to shell out a dividend in order to receive a positive rating, it can be helpful to further our analysis.

The estimated annual dividend for AA is $0.68 producing a current dividend yield of 8.10%. Much like our evaluation of Sales and Cash Earnings per share, we review dividend yields from AA against the historic high and low levels over all available dividend history. Because dividends are a decision made exclusively by management, we view a healthy and rising dividend as a sign of confidence and strength. The highest dividend yield from AA over previous years was 10.00% while the lowest dividend yield was 1.15%. It's hard not to notice that AA pays a current dividend yield that is 45.29% above the historical median. This peaks our interest since our analysis is looks favorably upon dividend yields that are greater than the historical median.

Peer Comparison

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Alcoa, Inc. Industry Grouping

(2/6/2009)
Company Ticker Market Cap (Ml) Latest
Price
Price/Cash Earnings Price/Sales 5-Yr. Rev.
Growth Rate
5-Yr.
Avg. ROE.
Current 10-Yr. Range* Current 10-Yr. Range*
Peer Company Averages (not incuding AA) 5.25 2.62 » 175.03 1.14 0.54 » 8.97 18.69% 16.43%
*10 year range does not include current year values
Peabody Energy Corp. BTU $7.7 Billion $28.90 4.97 2.48 » 30.37 1.00 0.32 » 3.96 10.98% 13.90%
Gerdau S.A. ADS GGB $7.3 Billion $7.76 3.06 1.32 » 12.43 0.35 0.20 » 1.36 37.10% 33.52%
Gold Fields Ltd. ADR GFI $7.2 Billion $10.99 8.20 4.52 » 128.57 1.82 1.09 » 6.57 15.92% 5.32%
Alcoa, Inc. AA $6.7 Billion $8.40 0.98 0.90 » 22.84 0.22 0.19 » 1.69 8.70% 11.78%
Yamana Gold, Inc. AUY $6.0 Billion $8.64 6.45 2.78 » 676.00 1.54 0.75 » 28.18 n/a 1.06%
Consol Energy Inc. CNX $6.0 Billion $33.11 3.57 2.03 » 27.76 0.98 0.35 » 4.80 10.77% 28.33%
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2/5/2009 10:52 AM
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2/3/2009 3:59 PM
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1/2/2009 3:02 PM
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Key Fundamentals

AA - Alcoa, Incorporated Fundamentals
Price (2/6/2009) $8.40
Volume (2/6/2009) 22.8 Million
10 Day Average Volume 22.2 Million
13 Week Price Range $6.80 - $12.44
52 Week Price Range $6.80 - $44.77
LTM Revenue $26.9 Billion
 
Shares Outstanding (12/2008) 800.3 Million
Market Capitalization $6.7 Billion
Shares Held By Institutions 651.2 Million
Institutional Holders 945
% Shares Held By Institutions 81.40%
Earnings Per Share (EPS) ($0.09)
P/E Ratio n/a
Book Value Per Share $19.94
 
Gross Margin 9.90%
Quarterly Dividend 0.68
Dividend Yield 8.10%
Beta 2.14
Fiscal Year Ends December