Morningstar April 30 - Morningstar Equity Research Alcoa...

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Morningstar Equity Research © Morningstar. All Rights Reserved. Unless otherwise provided in a separate agreement, you may use this report only in the country in which its original distributor is based. Data as originally reported. The information contained herein is not represented or warranted to be accurate, correct, complete, or timely. This report is for information purposes only, and should not be considered a solicitation to buy or sell any security. Redistribution is prohibited without written permission. To order reprints, call +1 312-696-6100. To license the research, call +1 312-696-6869. Last Price Fair Value Consider Buy Consider Sell Uncertainty Economic Moat™ Moat Trend™ Stewardship Morningstar Credit Rating Industry Group 13.43 USD 17.00 USD 8.50 USD 34.00 USD High Narrow Stable C Metals & Mining Alcoa Inc. AA (NYSE) | QQQ Market Cap (USD Mil) 13,712 52-Week High (USD) 17.60 52-Week Low (USD) 8.33 52-Week Total Return % 49.4 YTD Total Return % -16.5 5-Yr Forward Revenue CAGR % 7.6 5-Yr Forward EPS CAGR % -221.6 Last Fiscal Year End 31 Dec 2009 2008 2009 2010(E) 2011(E) Price/Fair Value 1.19 1.15 Price/Earnings 10.9 NM 49.7 8.4 EV/EBITDA 5.8 67.1 10.3 5.4 EV/EBIT 9.2 NM 23.5 7.6 Free Cash Flow Yield % -23.4 -1.6 0.5 3.8 Dividend Yield % 6.0 1.5 1.7 3.7 2008 2009 2010(E) 2011(E) Revenue 26,901 18,439 20,864 22,199 Revenue YoY % -8.1 -31.5 13.2 6.4 EBIT 2,079 -952 978 2,999 EBIT YoY % -41.5 -145.8 -202.7 206.8 Net Income 763 -839 276 1,494 Net Income YoY % -74.5 -210.0 -132.9 441.8 Diluted EPS 1.03 -0.90 0.27 1.60 Diluted EPS YoY % -70.0 -187.0 -130.1 491.0 Free Cash Flow -2,179 -252 62 527 Free Cash Flow YoY % 332.3 -88.4 -124.5 753.4 Alcoa is poised to recover with an improved cost base amid rising aluminum prices and demand. Bridget Freas, CFA Stock Analyst bridget.freas@morningstar.com Elizabeth Collins, CFA Associate Director elizabeth.collins@morningstar.com +1 (312) 384-4033 Research as of 30 Apr 2010 Estimates as of 29 Apr 2010 Pricing data through 30 Apr 2010 Rating updated as of 30 Apr 2010 Analyst’s Perspective 30 Apr 2010 We believe Alcoa is positioned to benefit from the impending recovery in the global aluminum market. Global demand is expected to grow about 10% in 2010, with rising consumption in all major regions. Current aluminum pricing is strong, and we believe healthy margins are attainable even in the face of rising energy and other input costs, as Alcoa±s cost-reduction efforts eliminated $2.5 billion in operating expenses in 2009. Closing two previously idled U.S. smelters and the possible closure of two high-cost Italian smelters will also improve the company±s cost position and free up capital to further execute on its growth strategy of pursuing upstream investments in low-cost regions. Key Investment Considerations Alcoa is the largest player in the global aluminum market, producing 20% of the world±s alumina and 10% of its aluminum. Alcoa±s upstream segments involve bauxite mining, alumina refining, and aluminum smelting. Downstream businesses produce beverage cans, aerospace components, gas turbines, auto and building products, and telecom parts. The company has operations on every content and mining activities in the U.S., Australia, Brazil, Guinea, Jamaica, Trinidad, and Suriname.
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Morningstar April 30 - Morningstar Equity Research Alcoa...

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