NEW YORK (TheStreet) -- Alcoa (AA) - Get Report shares are surging 5.84% to $9.60 in pre-market trading after the aluminum company announced earlier this morning that it would split into two publicly traded companies.
The transaction is expected to close in the second half of 2016.
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.
This separation comes as abundance of aluminum has caused prices to fall, Reuters reports.
TheStreet's Jim Cramer, Portfolio Manager of the Action Alerts PLUS Charitable Trust Portfolio commented on Alcoa's separation saying: "Alcoa 2 minus 1 equals 3--The two companies are worth more than the whole. This deal brings out tremendous value and I will be speaking to Klaus Kleinfeld this morning on Squawk on the Street and again on Mad Money to flesh out the two new businesses. I think the calue-added looks a lot like Precision Castparts (PCP) , which got a huge bid from Buffett."
Additionally, CEO Klaus Kleinfeld stated, "In the last few years, we have successfully transformed Alcoa to create two strong value engines that are now ready to pursue their own distinctive strategic directions."
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 revenue growth, increase in net income and reasonable valuation levels. However, as a counter to these strengths, we also find weaknesses including weak operating cash flow, a generally disappointing performance in the stock itself and generally higher debt management risk.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth greatly exceeded the industry average of 45.0%. Since the same quarter one year prior, revenues slightly increased by 1.0%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and greatly outperformed compared to the Metals & Mining industry average. The net income increased by 1.4% when compared to the same quarter one year prior, going from $138.00 million to $140.00 million.
- 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.
- The gross profit margin for ALCOA INC is rather low; currently it is at 20.93%. Regardless of AA's low profit margin, it has managed to increase from the same period last year.
- Net operating cash flow has declined marginally to $472.00 million or 8.88% when compared to the same quarter last year. In addition, when comparing the cash generation rate to the industry average, the firm's growth is significantly lower.
- You can view the full analysis from the report here: AA