标题: [基础分析] Outlook for Alcoa: Risky Business [打印本页] 作者: 何鸿燊 时间: 2010-1-8 18:00 标题: Outlook for Alcoa: Risky Business
Scott Eden
01/08/10 - 04:07 PM EST
NEW YORK (TheStreet) -- Aluminum giant Alcoa(AA Quote) will release its fourth-quarter results on Monday, but investors and analysts will likely be paying more attention to what the company has to say about the unusual status of the aluminum market than almost anything else in its quarterly report.
The metal, of course, is a tradeable commodity -- and for at least the last year, a slew of huge contango trades made by big-money market players has removed an enormous quantity of aluminum from the market.
Known as financing deals, these trades are essentially arbitrage plays, and they make it necessary to buy and store physical aluminum. Vast stores of metal are now sitting in warehouses run by the London Metals Exchange in places like Rotterdam and Liverpool.
When eventually the contango ends and the metal hits the market, prices of course will fall -- and so will Alcoa shares, which tightly track the price of the company's eponymous metal.
Other factors have recently helped lift aluminum prices on the LME -- and thus Alcoa stock. Over the last six months or so, speculators have bought up long positions in aluminum, a form of the same carry-trade that has become so popular among finance pros here in the era of the zero interest rate. Rising prices, meanwhile, have squeezed short traders, forcing them to cover their positions and adding to the aluminum-price spike.
The question, then, has become: When will all these bets unwind? The obvious answer: whenever the Federal Reserve raises rates, easing back on the spigot of free-flowing money, strengthening the dollar and making commodities less appealing to investors.
Until the aluminum market goes back to normal, Alcoa stock will remain a risky wager, analysts say. Partly for this reason, Citigroup(C Quote) analyst Brian Yu cut his rating on Alcoa Wednesday to hold/high risk from buy/high risk. In a research note, he also cited the stock's high price relative to the company's projected 2010 earnings.
Yu is bearish relative to his peers when it comes to Alcoa's fourth quarter. He believes the company will miss the consensus Wall Street earnings estimate of 6 cents a share, according to Thompson Reuters. Yu is looking for just 3 cents a share; he expects the weaker dollar to drag on earnings more than most expect.
Still, Monday will likely mark Alcoa's second period in a row with black ink on the bottom line after a string of quarterly losses. (A year ago, the company posted a $1.2 billion loss, mostly as a result of restructuring costs and a cratering aluminum market.) To deal with the recession, Alcoa has undergone massive cost cuts by laying off some 13,000 workers and idling smelters.
As such, investors will be looking closely at how those cost cuts have affected the company's bottom line. They'll also pay attention to the company's big aerospace and automobile segments for signs of life in those downtrodden end markets. Alcoa may discuss how much business it expects to do with Boeing(BA Quote) as it fills out orders for the 787 Dreamliner.
Alcoa shares were trading late in Friday's session at $16.96, up 35 cents, or 3%, on volume of 24.7 million shares. Average daily turnover amounts to about 31.5 million shares. Earlier in the week, when Citi issued its downgrade, Alcoa had fallen sharply.
Other metals stocks rose sharply Friday, especially steelmakers. Among other aluminum names, Kaiser(KALU Quote) shares rose 2.5% to 17.02, Century Aluminum(CENX Quote) jumped 4.8% to $17.83. while American depositary receipts of the Aluminum Corp. of China(ACH Quote) advanced 1.4% to $32.37.
