ALCOA Leading Off Earnings Season (AA)

It is hard to get too excited about metals and aluminum companies when technology and IT stocks are putting in new high after new high.  Regardless, ALCOA (NYSE:AA) is set to lead off the earnings season today as it is the first DJIA component to show its formal Q3 2007 earnings after today’s close with a conference call to follow at 5:00 PM EST.

First Call has estimates at $0.65 EPS and $7.4 Billion in revenues.  Based upon the stock in the middle of the 52-week range of $26.39 to $48.77 and based upon the upside earnings surprises having dwindled, it is hard to make any bold predictions today.  Options traders appear to be braced for an actual stock move of up to about $19.80 to $1.95 in either direction.  Analysts are still positive on the company with an average target north of $45.00. 

As far as the chart looks somewhat neutral.  There is some near-term upside resistance in this $38.50 to $39.50 range; but on a longer-term basis this has traded sideways outside of any long-term uptrend since late summer and is not indicative of any major new trend forming in either direction.

The company is already engaged in and has tried to be engaged in buyouts and divestitures of its own, but there have been more twists along the way than a pretzel.  Jim Cramer has gone on record saying this would not be entirely its own entity a year from now.  We aren’t going to cover the tie-ups because of the complexity and because of the recent changes to the capital market’s willingness to finance deals.  We will only evaluate this one on a standalone basis in the current environment.

• At the end of 2006 we noted this as one of the most undervalued stocks;
• Here was the position as of last earnings.

Jon C. Ogg
October 9, 2007