Shares of Alcoa Inc. (AA) touched a new 52-Week high of $14.79 on Jun 23, before closing the trading session marginally lower at $14.77.
The U.S. aluminum giant has a market cap of roughly $17.3 billion, and its average volume of shares traded over the last three months is around 18,621K.
What’s Driving Alcoa Up?
Alcoa’s adjusted earnings of 9 cents per share for first-quarter 2014, reported on Apr 8, topped the Zacks Consensus Estimate by 4 cents. Moreover, the company continues to expect aluminum demand to rise 7% this year.
Alcoa, a Zacks Rank #3 (Hold) stock, is seeing strong momentum across automotive and aerospace markets. The automotive industry is expected to offer significant opportunities this year and beyond. Alcoa observes significant growth in use of aluminum in the auto sector during 2014 as automakers increasingly look for the metal as a cost-effective mean to boost performance, safety, durability and fuel efficiency of their vehicles.
Alcoa is also witnessing healthy airline fundamentals. It has raised its growth expectations for the aerospace market to 8%—9% from 7%—8% for 2014 factoring in strong demand for both large commercial aircraft and regional jets and sustained growth in the business jet market. In May, the company announced that it has broken ground on its new $100 million aerospace expansion in La Porte, IN, where it will produce nickel-based superalloy jet engine parts for large commercial aircraft, including narrow- and wide-body and military airplanes.
Moreover, Alcoa remains committed to move down its cost curves in its upstream businesses and drive profitability in its midstream and downstream businesses. The company has taken up a number of restructuring measures (including closure of smelters) and is aggressively pursuing cost-cutting actions. The company, during the first quarter, announced three smelting capacity reductions.
Alcoa has also made several investments during the first quarter. In its midstream business, the Global Rolled Products unit invested $40 million in Itapissuma, Brazil rolling mill to bump up production of specialty foils. The company also commissioned the $300 million expansion at its Davenport, IA, facility.
In the downstream business, the recently launched Ultra ONE – the world’s lightest heavy-duty truck wheel – represents a major opportunity. Ultra ONE is a new 40-pound wheel and being 47% lighter than steel wheels of the same size it will help trucks carry more load and also improve fuel efficiency.
That being said, we account for continued pricing pressure. Aluminum prices remain weak given its oversupply in the market.
Key Picks from the Sector
Other mining companies worth considering include Hi-Crush Partners LP (HCLP), BHP Billiton Plc. (BBL) and Kazakhmys PLC (KZMYY). While Hi-Crush Partners sports a Zacks Rank #1 (Strong Buy), both BHP Billiton and Kazakhmys hold a Zacks Rank #2 (Buy).