Alcoa (AA) Stock Up Despite Plan to Idle Smelters, Cut Production

Alcoa (AA) stock is gaining as the company plans to cut production and idle three of its four U.S. aluminum smelters.
By Amanda Schiavo ,

NEW YORK (TheStreet) -- Alcoa (AA) - Get Report stock is rising by 0.44% to $9.21 in pre-market trading on Tuesday morning, despite the company's plan to idle three of its four active U.S. aluminum smelters and cut production as a result of the continuing decline in metals' prices.

The company is planning to reduce aluminum smelting capacity by 503,000 metric tons and alumina refining capacity by 1.2 million metric tons. This process will begin in the 2015 fourth quarter and the company expects it to be complete by the end of the fiscal 2016 first quarter.

Alcoa expects the move to improve the cost position of its upstream business and "ensure competitiveness in a lower pricing environment."

"In the face of continued adverse market forces, we are once again not standing still. These difficult, but necessary measures will further strengthen our upstream portfolio, reducing our cost position and driving greater resilience as we prepare to launch this business as a strong standalone company in the second half of 2016," Alcoa CEO Klaus Kleinfeld said in a statement.

Separately, TheStreet Ratings team rates ALCOA INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate ALCOA INC (AA) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels, good cash flow from operations and notable return on equity. However, as a counter to these strengths, we also find weaknesses including poor profit margins and a generally disappointing performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has significantly increased by 68.67% to $420.00 million when compared to the same quarter last year. In addition, ALCOA INC has also vastly surpassed the industry average cash flow growth rate of -54.04%.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, ALCOA INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 45.00%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 83.33% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
  • The gross profit margin for ALCOA INC is rather low; currently it is at 18.19%. It has decreased from the same quarter the previous year.
  • You can view the full analysis from the report here: AA
Loading ...