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Unformatted text preview: North America United States Industrials Metals & Mining 2 January 2011 Alcoa Reuters: AA.N Bloomberg: AA UN Exchange: NYS Ticker: AA Turning the corner; upgrading to Buy Jorge Beristain, CFA Research Analyst (+1) 203 863-2381 [email protected] David S Martin Research Analyst (+1) 212 250-5580 [email protected] Wilfredo Ortiz Research Analyst (+1) 212 250-3251 [email protected] Upgrade to Buy both aluminum and company-based We are upgrading Alcoa to Buy from Hold and raise our 12-month PT by ~60% from $14 to $22/share to reflect growing optimism on both aluminum's likelihood of higher prices and a belief that Alcoa has turned the corner from an operational point of view, which could spark a revaluation of its shares. Alcoa's laggard status has piqued investor interest in the name as a possible come-back play for 2011 and given signs of operational stability, we don't disagree. Forecasts and ratios Year End Dec 31 2009A 2010E 2011E 1Q EPS 1-0.61-0.20A 0.26 2Q EPS -0.47 0.13A 0.44 3Q EPS 0.08 0.06A 0.34 4Q EPS -0.28 0.16 0.34 FY EPS (USD) -1.28 0.15 1.38 P/E (x) – 104.6 11.1 DPS (USD) 0.26 0.12 0.12 Dividend yield (%) 2.4 0.8 0.8 Revenue (USDm) 18,439 20,884 26,644 EV/EBITDA 34.1 10.2 6.0 Source: Deutsche Bank estimates, company data 1 Includes the impact of FAS123R requiring the expensing of stock options. All prices are those current at the end of the previous trading session unless otherwise indicated. Prices are sourced from local exchanges via Reuters, Bloomberg and other vendors. Data is sourced from Deutsche Bank and subject companies. Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MICA(P) 007/05/2010 Recommendation Change Buy Price at 31 Dec 2010 (USD) 15.39 Price target 22.00 52-week range 17.45 - 10.00 Key changes Rating Hold to Buy Ç Price target 14.00 to 22.00 Ç 57.1% EPS (USD) 0.19 to 0.15 È-22.6% Revenue (USDm) 20,867.7 to 20,884.3 Ç 0.1% Price/price relative 10 20 30 40 50 1/08 7/08 1/09 7/09 1/10 7/10 Alcoa S&P 500 INDEX (Rebased) Performance (%) 1m 3m 12m Absolute 17.3 27.1-4.5 S&P 500 INDEX 6.5 10.2 12.8 Stock & option liquidity data Market Cap (USDm) 15,858.6 Shares outstanding (m) 1,030.4 Free float (%) 100 Volume (31 Dec 2010) 14,348,000 Option volume (und. shrs., 1M avg.) 3,538,491 Implied & Realized Volatility (3M) 0% 50% 100% 150% Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Realized Vol Implied Vol (ATM) Company Global Markets Research Turning the corner at the company level A confluence of events leads us to grow more optimistic: 1) 3 quarters of normalized earnings indicate ~$0.80 of annualized EPS at current aluminum prices; 2) At November’s investor meeting (first one in 4 years) management detailed...
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- Spring '11
- Finance, Aluminium, Alcoa, Deutsche Bank, Metals & Mining Alcoa