Alcoa, Inc. (NYSE: AA) is set to lead off Q2-2008 earnings season. After looking around at many last minute sources, we’d caution against you falling for tying the overall bias of earnings season to the reaction based upon Alcoa. Alcoa (results versus expectations) hasn’t been representative of metals, mining, finished metals, or the overall economy for longer than you’d probably like to hear about.
The good news is that the lows of recent years appear to be higher and higher lows. The bad news is that you just can’t tell without knowing the insider activity and dealings whether or not Alcoa will be predator or prey. You also don’t know if they will continue to divest smaller operations deemed non-core operations.
First Call has estimates pegged at $0.68 EPS on $7.37 Billion in revenues. Estimates for next quarter are $0.74 EPS on $7.49 Billion, and fiscal Dec-2008 estimates are $2.73 EPS on $29.7 Billion in revenues. Just keep in mind that these numbers may change and that Alcoa has a history of being all over the place on a "report vs. expectations" basis.
With a $27+ Billion market cap, it’s hard to imagine a deal being done where the company gets acquired. But in today’s world of metals, miners, and finished metals having gone through the roof and with so many of the large international players now being exponentially larger than US operators, it’s just too hard to call it impossible even when you consider the current credit environment.
Alcoa is up less than 1% at $33.08 min-Monday, and its 52-week trading range is $26.69 to $48.77. Last year, the Times put this one in play and we all know Jim Cramer and other CNBC regulars have been calling perpetually for a merger in this name.
Options traders appear to be pricing in a move of up to $1.48 to $1.65 in either direction, but that may change between now and the report. Keep in mind that last minute changes may also change those consensus estimates. Many headline attention grabbing media outlets will try to convince you that this is the key to the bias for earnings season. We’d opine that any such truth is merely a coincidental indicator rather than any leading indicator. We’d even take that a step further and make the same statement towards Alcoa’s impact and bias-setting power in the overall metals sector.
Jon C. Ogg
July 7, 2008
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