Alcoa, Not A Real Earnings Season Proxy (AA)

Alcoa Inc. (NYSE: AA) is leading off the deluge of earnings report for the Q1-2009 earnings season today.  Historically, many traders have thought that Alcoa could be used as a measuring stick for other companies about to report.  While it may face many of the same issues as the metals companies and as companies manufacturing durable goods, the good news is that Alcoa has little correlation to the broad services economy.  Most feel the only relation that the company has to the broader market is that it will be an exaggerated “bad” report along with many other companies and sectors this quarter.  This company has also telegraphed so many problems ahead that it is hard to imagine what else is not baked into the cake today.

Alcoa has already cut its dividend, announced layoffs, announced furloughs and plant closures, and raised cash.  The aluminum giant recently about $1.3 billion last month to repay credit facilities.  It sold 150 million shares of common stock at $5.25/share, a discount of about 23% to $5.48/share prior close; also priced $500 million in 5.25% convertible notes due in 2014 with a convertible price of $6.43 per share.

On March 31, Deutsche Bank gave it an upgrade of sorts: raised to HOLD from SELL.  On March 19, Alcoa was raised to Overweight at JPMorgan.  Alcoa is unprofitable at the current prices.  We have evaluated options prices, and our read on this is that the options traders are braced for a stock price move in either direction of more than 10% based on this report.

Thomson Reuters (First Call) sees estimates at -$0.57 EPS and $4.08 billion in revenues.  The company has been backing away from guidance, but estimates for next quarter are -$0.32 EPS on $4.19 billion in revenues.  Where this gets interesting is that the estimates start to go positive toward the end of the year because the fiscal estimate for DEC-2009 is -$0.80 EPS on $17.38 billion in revenues.  And for 2010, Alcoa is expected to post $0.56 EPS on over $19.5 billion in revenue.

Over the last 90-day period, estimates have been slashed and burned across the board.  Less than three months ago, we had fiscal 2009 estimates as being a profit of $0.18, and the 2010 estimates have been cut in more than half since then.

Again, just about everything has been thrown in here along with the kitchen sink.  Some expect a rally regardless of the news.  Some expect the news to be so ghastly that the stock retests its lows at some point after the news.  Shares are down less than 1% today at $7.86, and its 52-week trading range is $4.97 to $44.77.

We expect the news here to be dismal unless it is willing to reverse its stance of just about three weeks ago.  But again, so much information and warnings data has already been divulged here ahead of time that it is hard to imagine what else the company could say.

JON C. OGG