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NEW YORK (TheStreet) -- Alcoa (AA) - Get Alcoa Corporation Report  shares are rallying 2.82% to $8.94 on Monday morning after activist hedge fund Elliott Management disclosed a 6.5% stake in the lightweight-metals company. 

At the end of September, the aluminum company announced that it would split into two publicly-traded companies, which the activist investor supports. 

The company keeping the Alcoa name will focus on upstream products, including five business units--bauxite, alumina, aluminum, casting and energy. The other company will focus on engineered products, which include the aerospace and automotive segments.

According to an Alcoa spokesperson, "Elliott advised us of their ownership of AA shares several weeks ago, shortly after we announced the separation of our Upstream and Value-Add businesses. Since then we have had constructive discussions with Elliott."

This separation comes at a time when the abundance of aluminum has caused prices to tumble, according to Reuters.

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However, Elliott is concerned about management's ability to improve margin of around 700 basis points, added. 

Based in New York, Alcoa produces and manages primary aluminum, fabricated aluminum, and alumina worldwide.

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 -54.42%.
  • 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 47.52%, 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