Beware Tying ALCOA To Peers (AA)

Alcoa, Inc. (NYSE: AA) is set to report earnings today.  First Call has estimates at $0.33 EPS on $6.92 Billion in revenues.  Next quarter’s estimates are $0.60 EPS on $7.03 Billion in revenues.  If the company offers any fiscal 2008 targets, First Call also has its targets of $3.09 EPS on $28.77 Billion in revenues.

Investors have a love affair with anything commodities related and every quarter or year the investment community tries to garner a glimpse of trends in the sector with Alcoa.  About the only thing that can be said besides this being the first of the big metals companies to report earnings is that the coupling between Alcoa and the sector doesn’t really exist.  This has been the case for years.

Alcoa has spent years in restructuring and its issues have seemingly drifted away from any real comparison to other ferrous and non-ferrous metals companies.  That is particularly true if you take into consideration the global wave of mergers that have occurred over the last few years.  Even it being a component of the Dow Jones Industrial Average doesn’t change this fact.

Don’t interpret this as a signal for gains or losses.  Alcoa has a history of beating and missing earnings to the point that Wall Street estimates tend to be more of a range rather than a fixed number.  The ratings are all over the place.  The average price target still appears to be $44+ on last look, roughly 35% higher than current prices.

Any directional moves with the sector are more coincidental rather than normal.  Shares closed at $31.00 yesterday and the 52-week trading range is $28.09 to $48.77.  We’d still expect for Wall Street to make its ties today, although we’d again note that Alcoa isn’t usually the best bogey for the entire industry in the U.S. or international metals markets.

Jon C. Ogg
January 9, 2008