Aluminum Producers Rally: AA, CENX, ACH, NOR, KALU

NEW YORK (TheStreet) -- Aluminum producers rallied for the second time within two weeks on little apparent news.

Micro-cap producer Noranda Aluminum Holding (NOR) led the sector, up 8.9% to $2.95, followed by industry heavyweight Alcoa (AA) which saw 6.9% gains to $9.91. Century Aluminum (CENX), which is due to report earnings after market close, added 4.5% to $9.18, Aluminum Corp of China (ACH) was 3% higher to $9.31, and Kaiser Aluminum  (KALU) climbed 1.4% to $68.15.

In October, Bloomberg said the run-up in aluminum stocks was likely due to speculation prices for the metal would spike over the remainder of the year. On the London Metal Exchange, aluminum for delivery in three months has risen 2.2%.

Alcoa

TheStreet Ratings team rates Alcoa Inc as a Hold with a ratings score of C. The 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 compelling growth in net income, impressive record of earnings per share growth and notable return on equity. However, as a counter to these strengths, we also find weaknesses including poor profit margins, weak operating cash flow and generally higher debt management risk."

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

  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Metals & Mining industry. The net income increased by 116.8% when compared to the same quarter one year prior, rising from -$143 million to $24 million.
  • Alcoa Inc reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ALCOA INC reported lower earnings of 17 cents a share vs. 52 cents a share in the prior year. This year, the market expects an improvement in earnings ($0.34 versus $0.17).
  • Net operating cash flow has decreased to $214.00 million or 18.63% when compared to the same quarter last year. Despite a decrease in cash flow of 18.63%, Alcoa Inc is in line with the industry average cash flow growth rate of -28.16%.
  • The gross profit margin for Alcoa Inc is rather low; currently it is at 16.77%. Regardless of AA's low profit margin, it has managed to increase from the same period last year. Despite the mixed results of the gross profit margin, AA's net profit margin of 0.41% is significantly lower than the industry average.


Century Aluminum

TheStreet Ratings team rates Century Aluminum Co as a Hold with a ratings score of C-. The team has this to say about their recommendation:

"We rate Century Aluminum CO (CENX) 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, good cash flow from operations and increase in stock price during the past year. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, unimpressive growth in net income and poor profit margins."

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

  • Despite its growing revenue, the company underperformed as compared with the industry average of 3.2%. Since the same quarter one year prior, revenues slightly increased by 2.6%. 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.
  • Net operating cash flow has significantly increased by 108.82% to $0.58 million when compared to the same quarter last year. In addition, CENTURY ALUMINUM CO has also vastly surpassed the industry average cash flow growth rate of -28.16%.
  • Compared to where it was a year ago today, the stock is now trading at a higher level, regardless of the company's weak earnings results. Despite the fact that it has already risen in the past year, there is currently no conclusive evidence that warrants the purchase or sale of this stock.
  • CENTURY ALUMINUM CO has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, CENTURY ALUMINUM CO swung to a loss, reporting -41 cents a share versus 7 cents a share in the prior year. For the next year, the market is expecting a contraction of 102.4% in earnings (-83 cents vs. -41 cents).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 181.6% when compared to the same quarter one year ago, falling from -$12.28 million to -$34.57 million.

Noranda Aluminum

TheStreet Ratings team rates NORANDA ALUMINUM HOLDING CP as a Hold with a ratings score of C-. The team has this to say about their recommendation:

"We rate NORANDA ALUMINUM HOLDING CP (NOR) 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 and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and generally higher debt management risk."

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

  • Despite its growing revenue, the company underperformed as compared with the industry average of 3.2%. Since the same quarter one year prior, revenues slightly increased by 0.9%. 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.
  • Net operating cash flow has significantly increased by 480% to $26.1 million when compared to the same quarter last year. In addition, NORANDA ALUMINUM HOLDING CP has also vastly surpassed the industry average cash flow growth rate of -28.16%.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 55.63%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 640% 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.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, NORANDA ALUMINUM HOLDING CP's return on equity significantly trails that of both the industry average and the S&P 500.
  • The gross profit margin for NORANDA ALUMINUM HOLDING CP is currently extremely low, coming in at 9.09%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -5.35% is significantly below that of the industry average.

Kaiser Aluminum Corp

TheStreet Ratings team rates KAISER ALUMINUM CORP as a Buy with a ratings score of A-. TheStreet Ratings Team has this to say about their recommendation:

"We rate KAISER ALUMINUM CORP (KALU) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, attractive valuation levels, good cash flow from operations and increase in stock price during the past year. We feel these strengths outweigh the fact that the company has had subpar growth in net income."

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

  • The current debt-to-equity ratio, 0.35, is low and is below the industry average, implying that there has been successful management of debt levels. Along with this, the company maintains a quick ratio of 3.16, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has increased to $41.7 million or 30.31% when compared to the same quarter last year. In addition, KAISER ALUMINUM CORP has also vastly surpassed the industry average cash flow growth rate of -28.16%.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • KALU, with its decline in revenue, slightly underperformed the industry average of 3.2%. Since the same quarter one year prior, revenues slightly dropped by 4.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

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