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Alcoa Inc. Message Board

wgrsh 281 posts  |  Last Activity: 21 hours ago Member since: May 11, 2005
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  • Reply to

    Uncle's watching State of the Union 2015 Live

    by unclespeaking Jan 20, 2015 8:07 PM
    wgrsh wgrsh Jan 20, 2015 9:02 PM Flag

    // or when the Rig Count will drop //

    I think you have to be careful with the rig count, though I'm sure that reduction story will be pushed. From what I understand, different rigs produce different amounts and some fields are just better, so what is reduced is probably more important than the number ... it just isn't linear. We'll see how the reporting goes.

    I'll gladly accept $60-70 oil, but frankly I don't think anyone knows what the proper price should be after a decade plus of deregulated commodity swaps that were ripe for manipulative speculation mispricing things. Commodities look to the futures market for price discovery. Price allocates resources. You screw up that system ... and who knows? One thing for sure, you don't have an efficient allocation of resources ... which brings us back to what you were saying. Regardless, I think this is a huge positive for the economy. The perplexing economic past may be starting to crumble.

  • Reply to

    Uncle's watching State of the Union 2015 Live

    by unclespeaking Jan 20, 2015 8:07 PM
    wgrsh wgrsh Jan 20, 2015 11:53 PM Flag

    That's all I was saying, unc ... it's more complicated than just "or when the Rig Count will drop". I must have misunderstood you.

  • Reply to

    UAL cc just ended

    by markusgzee Jan 22, 2015 11:29 AM
    wgrsh wgrsh Jan 22, 2015 1:22 PM Flag

    // LUV is true kings of hedging //

    LUV made the right bet for 2008 with hedges, but has lost since then. Anyone who has hedged since 2009 has lost against someone not hedging, and that includes LUV, and LUV hasn't done any better than others that have hedged. Parker (LCC) hasn't had hedges since 2009 ... can't think of any other major airline that didn't hedge besides Parker at LCC.

  • Reply to

    UAL cc just ended

    by markusgzee Jan 22, 2015 11:29 AM
    wgrsh wgrsh Jan 22, 2015 1:55 PM Flag

    // not a bad way to run it //

    Well, like other hedging carriers, LUV is stuck and trying to make the best of their bad hedges. They took a hit getting out of 2015 hedges, and still have losses on 2016 and 2017 hedges. And they'll be trying to minimize those. What else can you do when caught in a bad situation? They are just trying to make it less bad ... they already ran themselves into a bad situation.

    Don't get me wrong, LUV is the strongest airline financially (decades of profits make them a king in that area) ... their hedging as been a negative since the bet on 2008.

  • Reply to

    UAL cc just ended

    by markusgzee Jan 22, 2015 11:29 AM
    wgrsh wgrsh Jan 22, 2015 2:35 PM Flag

    // 2016 and 2017 of we do not yet know what the prices will be then.//

    If those hedges for 2016 and 2017 were put on before December, they are losing money at this point. Going forward, they'll lose more, or lose less depending on what oil does ... but the 2016, 2017 position is being held at a loss.

    Without any numbers, I can't see how you can claim they do it the "best" ... I think LUV's hedging halo from 2008 is coloring that point of view.

  • Reply to

    Good Post

    by markusgzee Jan 23, 2015 11:56 AM
    wgrsh wgrsh Jan 23, 2015 1:08 PM Flag

    It's a good post, because it is positive about AAL. But Parker's view of hedges is that it is extremely expensive to put them on for only a portion of the year's fuel. But his main argument is that there is a "natural" hedge. If the economy is strong and oil goes up, the industry now has the discipline to raise fares. If the economy is weak, oil will weaken. So, why pay for expensive hedges?

    The low PE has two parts (leaving out growth): It is based on pre-taxed earnings (It'll jump when they report after tax earnings). Also related to the "E" part is that he airline industry is also considered cyclical and the "E" always has to consider the earnings over the business cycle. But probably more important is what interest rate do you discount those future earnings. That's a debate. Many argue that the company's cost of capital should be used. That's where LUV has an edge, and primarily because of their financials. One thing, as AAL brings down its cost of capital, multiples can expand ... nothing like good "E's" to clean up a balance sheet.

    Having said all that, the market is going to price the stock as it feels, trading above or below the true valuation ... momentarily at the true valuation, but who will know?

  • Reply to

    nice day to buy before next tuesday

    by hannibal7878 Jan 23, 2015 1:21 PM
    wgrsh wgrsh Jan 23, 2015 1:42 PM Flag

    I can't off hand list the fuel cost savings that other carriers have announced for 2015 ... what are some? ... $1.2 billion, maybe $1.7 billion, some less. I wonder what the market reaction will be when AAL gives near a $4+ billion figure? Maybe not that much going by the forward curve, but it should differentiate them from the others.

  • Reply to

    Good Post

    by markusgzee Jan 23, 2015 11:56 AM
    wgrsh wgrsh Jan 23, 2015 2:44 PM Flag

    Unc ... 5% is not bad growth. It's not going to give you a high growth tech PE, but even no growth stocks can be trading below their "no growth" PE. Theoretically, there are only three variables in the "PE" model, earnings, growth of those earnings and the interest rate you discount those future earnings. Even a "no growth" yields a PE value. 5% growth isn't bad ... and especially as in the case of AAL, where earnings jumped 80-100% the year before (2015). Those are in-close earnings (2015), not earnings growth years out ... much more valuable (present value wise).

  • Reply to

    nice day to buy before next tuesday

    by hannibal7878 Jan 23, 2015 1:21 PM
    wgrsh wgrsh Jan 24, 2015 11:04 AM Flag

    unc ... thanks for the advice to "just stay calm" when I said "I wonder" ... I came down from the ceiling.

    It will be interesting what they put out as to 2015 fuel using the forward curve. It could be significantly differentiating from the others. I can understand you saying "everyone" knows. I can add "everyone" knows about the capx ... new planes, other merger investments, and that airline stocks have run-up the last few days. Then again, who knows what the market will do? Right now AAL is being treated just like the hedged airlines as to P/share.

    The 4% extra labor cost is an extra cost, but ex the 4%, those increases were considered when they estimated making $4.3 billion (2015) in the merger prospectus as the synergies exceed the pre-merger labor agreements costs. I'm still holding to that (plus fuel savings). In 2014 the prospectus estimated $3.7 billion which they exceeded ... so far no reason to doubt AAL.

  • Reply to

    nice day to buy before next tuesday

    by hannibal7878 Jan 23, 2015 1:21 PM
    wgrsh wgrsh Jan 24, 2015 11:43 AM Flag

    unc ... the one thing that no one talks about too much is the Venezuela situation. Though this has been known, this could be the time when they take the write down. A lot of other companies involved with Venezuela have been taking write downs. That'll dirty up 2014, but leave 2015 a little cleaner. It's been a known situation, but the reaction is unknown.

  • wgrsh wgrsh Jan 26, 2015 10:06 AM Flag

    // small engines in snowblowers and lawn equipment //

    Find a gas station that sells gas with no ethanol and fill up your gas can.

  • Reply to

    Update on Venezuela Money

    by unclespeaking Jan 26, 2015 7:18 PM
    wgrsh wgrsh Jan 26, 2015 7:34 PM Flag

    And the big question is whether the 12 vbe/usd holds ... I think VZ is going to announce a new exchange. That being said, and apparently you went back to the filing, didn't they say they had some agreement the VZ government on a value for a portion of the money? Anyway, whatever the hit, it will be like a small fuel hedge hit.

  • Reply to

    down

    by j26231f Jan 26, 2015 5:27 PM
    wgrsh wgrsh Jan 26, 2015 7:54 PM Flag

    // I don't own airlines at near highs when all is rosy. //

    That sort of describes the last few years. One always has to re-evaluate.

    Not that I know what's going to happen tomorrow, but AAL has gone up 10% over the last 2.5 months and earnings estimates have gone up 50%. And the estimates are "near" what they will make if oil goes back up to $65.

  • wgrsh wgrsh Jan 27, 2015 8:52 AM Flag

    Well boys and girls ... the current eps estimates for 2015 are too low ... nothing like a $5 billion fuel savings for 2015.

  • Reply to

    I guess the pre-market was right

    by carruthersdevelopers Jan 27, 2015 9:33 AM
    wgrsh wgrsh Jan 27, 2015 9:56 AM Flag

    // but fund managers are dieing to catch the big drop in oil. //

    At some point there will be some good buys in the oil patch. Hopefully, the fund managers won't "stain" their portfolios, and buy at the right time.

  • Reply to

    PRASM OUTLOOK

    by cavalier2015 Jan 27, 2015 9:57 AM
    wgrsh wgrsh Jan 27, 2015 10:57 AM Flag

    // Can't just Pick what you Want to See. //

    There are lots of color in a headline number like PRASM. I see yield too ... more important, and also remember to consider YOY percentages. Got to get a pencil out and work with the real PRASM computed from Q1 2014, etc., etc. Looking forward to their cost guidance filing.

    Ex-fuel it also looks like things improve after Q1, and Q1 will still be good. Fuel ... just have to wait and see.

  • Just ran some quick numbers and definitely looks like a beat for Q1 ... and with some assumptions, adding some color ... by a lot. Have to go back and do more work. But initially with conservative assumptions, they beat easily.

  • Reply to

    Initial stab at Q1 Earnings ... beat

    by wgrsh Jan 27, 2015 11:12 AM
    wgrsh wgrsh Jan 27, 2015 11:29 AM Flag

    // Just finished my quick update ... $2.17 //

    I can go conservative and get $1.69 to using midpoint cost guidance and current analysts' revenue estimates and get $2.33. So, what's not to like?

    I have to go back and figure my own revenue, but the above still makes sense with the pre-tax margin guidance. So, .... ?

    Maybe the reaction is just to the possible changing outlook on the economy, and it's impact on the airlines.

  • wgrsh wgrsh Jan 27, 2015 11:43 AM Flag

    Wasn't the RASM hit due to currency given as about 1%, and not sure if that included the .5% for VZ? ... so it is there, but doesn't seem that big. And overall the positives of a strong dollar will eventually overcome that.

    And it is insane when taken in the context of fuel, as you say.

  • Reply to

    Initial stab at Q1 Earnings ... beat

    by wgrsh Jan 27, 2015 11:12 AM
    wgrsh wgrsh Jan 27, 2015 11:57 AM Flag

    // trying to crunch numbers //

    AAL provides a lot of variables ... you should look over their guidance.

    Also re-think you statement about AAL's cost advantage compared to other airlines if fuel rises ... there is a lot of air that rising fuel has to make up before AAL looks even the same as other carriers.

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