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AA (NYSE) |
...in-depth reviews of stocks from all sectors... |
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Alcoa (AA, NYSE) Have you ever wondered as to why Corporations are structured they way they are? I am not referring to any particular company or a stock but all corporations. One's, about which there are thousands of analysts, managers and citizens spending millions of man hours, studying, analyzing, charting, buying and selling. If, for a moment you stop trying to see them as investments, you will see that modern day corporation has evolved into entities that are eerily similar to man himself. Even the legal structure of giving companies a limited liability structure, is creation of non-living entities which have almost as much power and freedom as we do. In some cases, more. Why I bring this up, is because of the latest attention to monopolies in the U.S. Every corporation, just as the ambitious people running them, is trying to outsmart its competition and create a business niche for itself, as large as legally possible. Had there been no laws against unfair monopolistic practices, most companies will end up evolving into monopolies. While monopolies are rare in our society, Oligopolies are quite common and cartels have become acceptable, in fact desirable in some cases. Case in point is the oil cartel, which seems to be working well, at least for the producers. I want to draw your attention to another cartel, that of the Aluminum producers. Since the troubles began in Russia, major producers of Aluminum have formed a cartel that is controlling metal price in a much narrower band than in previous decades. Its largest member, Alcoa, Phone: (412) 553-3042, has managed to reduce the volatility in its earnings dramatically. So much so, that for all practical purposes, it is now a growth stock, with compounded annual growth rate of over 15%. Yet the stock is trading close to its 52 week low. The reasons for such a disbelief by the investment community, are tow fold. First, there is the risk of U.S. Fed tightening the rates so hard that we could end up in a recession. That, cartel or no cartel usually results in dropping metal prices and EPS. Second, there is the Canadian competitor, Alcan, threatening to snatch the top spot from AA. As it currently stands, Alcoa, Inc. is the world's leading producer of primary aluminum, fabricated aluminum and alumina, and a major participant in all segments of the industry, including mining, refining, smelting, fabricating and recycling. Alcoa serves customers worldwide primarily in the transportation (including aerospace, automotive, rail and shipping), packaging, building and industrial markets, with a great variety of fabricated and finished products. Alcoa is organized into 25 independently managed business units and has over 228 operating locations in 32 countries. Alcoa reports four worldwide segments: Alumina and Chemicals, Primary Metals, Engineered Products and Flat-Rolled Products. On May 3, 2000, the Company completed the acquisition of Reynolds Metals Company. For the three months ended 3/31/00, revenues rose 15% to $4.57 billion. Net income applicable to Common rose 61% to $355 million. Revenues benefited from higher alumina and prime aluminum prices and increased alumina sales volumes. Net income also reflects improved cost performance. Looking at the historical performance of AA, it has been steadily improving its EPS, Returns on Equity and sales per share over the last five years, It has the look and feel of a growth stock. Charts: Alcoa still earns a
high return on equity ( low of 16% to The
projected EPS for 2000 is $2.16 with a significant growth expected
if the economy stays on track The following input were used to construct the P/E chart. Beta: 1,13, Debt/Equity 40% Earnings Per Share: Low $2.16, High $2.90 Return on Equity : 17% Plowback: 80%
Last Updated June 19, 2000 |
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