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Alcoa (AA) Divests Warrick Rolling Business to Kaiser Aluminum

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Alcoa Corporation AA, on Apr 1, communicated that it completed the divestment of its rolling mill business located at Warrick Operations (integrated aluminum manufacturing site based in Indiana) on Mar 31. The buying party of the transaction, valued at $670 million, was Kaiser Aluminum Corporation KALU.

The divestment, originally communicated in November 2020, was valued at $670 million and comprises a cash component of $587 million and an assumed liability of $83 million. It is worth noting here that Alcoa’s shares lost 0.8% on Apr 1, ending the trading session at $32.23.

Kaiser Aluminum is a specialist in making specialty aluminum products (semi-fabricated). Customers majorly belong to consumer durables, electrical, aerospace, machinery, and other markets. The company is based in Foothill Ranch, CA.

Inside the Headlines

As noted, the divested business comprised of casthouse, coating and slitting lines, hot mill, and cold mills. The mills can produce 310,000 metric tons of flat-rolled aluminum annually. This business along with its 1,170 employees is now part of Kaiser Aluminum.

Before the completion of the divestment, the businesses were owned and operated by Alcoa Warrick LLC. Notably, Alcoa Warrick has a significant presence in the aluminum-based packaging market — making bottles, food containers and aluminum cans — in North America.

As part of the divestment agreement, Alcoa engaged in a ground lease, services and molten aluminum supply agreements with Kaiser Aluminum. Notably, Alcoa will remain the owner of electricity generation facilities and aluminum smelter located at Warrick Operations.

As disclosed in November, Alcoa expects to incur transaction-related costs of $100 million, with half to be recorded in 2021, and others in 2022 and 2023. It believes that the divestment will hurt its sales, net income, and adjusted earnings before interest, tax, depreciation and amortization.

The divestment is in sync with Alcoa’s initiatives to restructure its portfolio by disposing of non-core assets and focus more on core operations. It aims to generate cash between $500 million and $1 billion through these actions.

Zacks Rank, Price Trend and Earnings Estimate

With a market capitalization of $6 billion, Alcoa currently carries a Zacks Rank #2 (Buy). The company is poised to benefit from enhanced productivity, inorganic actions and strategic initiatives.

In the past three months, Alcoa’s shares have gained 27.8% compared with the industry’s growth of 12.6%.

The Zacks Consensus Estimate for the company’s bottom line is pegged at $3.33 for 2021 and $2.92 for 2022, reflecting improvements of 69% and 172.9% from the respective 60-day-ago figures. Also, the estimate for the first quarter of 2021 has been unchanged at 47 cents.

Alcoa Corp. Price and Consensus

Alcoa Corp. Price and Consensus
Alcoa Corp. Price and Consensus

Alcoa Corp. price-consensus-chart | Alcoa Corp. Quote

Other Stocks to Consider

Two other top-ranked companies in the Zacks Industrial Products sector are Chart Industries, Inc. GTLS and EnPro Industries, Inc. NPO. Both Chart Industries and EnPro currently sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the past 60 days, earnings estimates for the two companies have improved for the current year. Further, earnings surprise for the last reported quarter was 58.75% for Chart Industries and 143.14% for EnPro.

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