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Alcoa Stock Is Flying, With Landing Gear Nowhere in Sight

NEW YORK (TheStreet) -- Alcoa (AA - Get Report) investors are no longer  "making the best of a bad situation." They're making a lot of money and will for some time.

Wth its recent $3 billion acquisition of Firth Rixson, a U.K.-based maker of jet-engine components, Alcoa management has essentially proclaimed the sky's the limit when it comes to long-term growth.

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Since the deal was announced, Alcoa stock soared more than 5% to a new 52-week high of $15.18. Shares closed Thursday at $14.98 and are now up nearly 41% for the year to date.

Some investors may wonder when the landing gears will emerge. Not so fast.

The Firth Rixson deal may seem expensive but management saw a deal they couldn't pass up. By acquiring Firth, Alcoa is aligning itself with the aerospace industry, where it has sought to grow aluminum revenue with (among others) Boeing (BA).

From that standpoint, this deal should pay for itself. But assuming the Boeing angle was not considered, this deal -- on its own -- still presents considerable value for Alcoa, which just acquired a strong position in an area -- isothermal technology -- that is projected to triple its growth in the next eight years.

The addition of Firth Rixson materially expands Alcoa's product portfolio. As of now, Alcoa should not be seen as a company solely tied to the ups and downs of the commodity aluminum industry. With Firth's capabilities in specialized isothermal technology, Alcoa immediately becomes more diversified.

Firth, the world's largest supplier of seamless rings for aero-engines, will also provide Alcoa an additional source of revenue with its rings and metal products business. What's more, management anticipates 60% revenue growth for Firth's business in the next three years, which will contribute $350 million in Ebitda for Alcoa the next two years.

When you consider Firth's projected revenue is expected to grow 12% annually through 2019, double the growth rate of he aerospace industry, what's not to like? Not to mention, 70% of that growth is guaranteed through long-term contracts.

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