Q4 Preview: Analysts Cautious on Alcoa (AA) on Prices, Europe; Investors Gear for Upside

Alcoa (NYSE: AA) is scheduled to unofficially kick-off the fourth-quarter 2011 earnings season on Monday after the markets close.

The Street is expecting Alcoa to report a loss of 2 cents per share on revenue of $5.78 billion. Earnings would be a significant drop from 21 cents per share reported in the same period last year.

Shares of Alcoa lost 32.2 percent in the quarter, dropping to $8.65 at the end of December. Shares are 5.9 percent better since the beginning of 2012. Shares have traded within a range of $8.45 to $18.47 over the last year.

Last quarter, Alcoa reporting cash of $1.25 and a book value of $13.97 per share. Taking out cash, shares are going for about 9.1x next year's earnings expectations.

Data from Bloomberg has nice analysts with a Buy rating on Alcoa, eight at Hold, and three with a Sell. The Street's price target average is $12, with a range of 8 to $18 per share.

Positioning might also be going on, with call options getting more love than comparable puts. January call volume is good, but overall open interest is solid, indicating investors are hanging onto positions. Notably, January 11 puts are showing open interest of just 7,800 or so, compared with 49,400 for the comparable call.

Alcoa is higher Monday after detailing efforts to close or curtail some of its smelting capacity.

If you're an investor and been burned by Alcoa, click here to get Barron's prospective on why a rebound in 2012 might happen.

Analyst Comments

• Goldman sees a loss of 3 cents per share in the quarter. Goldman sees all four of Alcoa's operating segments dropping revenue numbers sequentially.
  
  The firm comments: "Europe, where Alcoa generates 20 percent of its revenue, continues to be a drag as demand in the region slows and political uncertainty persists. While we have a positive long-term view on Alcoa, primarily due to its exposure to aerospace and the benefits of alumina-aluminum price decoupling, we now believe that in the near to medium term these earnings drivers may only partially offset headwinds from low aluminum prices and weakness in Europe."
  
  
• JPMorgan sees a loss of 3 cents per share on lower aluminum prices and increased raw material cost pressures.
  
  
• Deutsche Bank is modeling for earnings of 1 cent per share. Deutsche said, "We expect Primary metals and alumina sales volume to remain unchanged at 754,000 tons and 2.3 million tons. We forecast 4Q11 realized aluminum price to come in at $1.13/lb (-11% QoQ), implying a 16c/lb premia to $0.97/lb benchmark price (15 day lag to LME), while 4Q11 LME traded at $0.88 to $1.01/lb. Production costs are expected flat QoQ at $1.11/lb (-1% QoQ). Alumina average realized price to decline to $350/ton (-10% QoQ) while cash costs should remain flat at $254/ton."
  
  
• Dahlman Rose sees earnings of 1 cent per share, down from 9 cents per share before the recent production curtail announcement. The adjustment reflects softer demand in Europe, as well as declining aluminum prices. Dahlman thinks Alcoa is "attractive" at current price levels.

Below are some other notable earnings reports for the upcoming season:

• January 13 - JPMorgan (NYSE: JPM)
  
  
• January 17 - Wells Fargo (NYSE: WFC)
  
  
• January 18 - Goldman Sachs (NYSE: GS), US Bancorp (NYSE: USB)
  
  
• January 19 - Bank of America (NYSE: BAC), Intel (Nasdaq: INTC), Microsoft (Nasdaq: MSFT), American Express (NYSE: AXP)
  
  
• January 20 - Schlumberger (NYSE: SLB), Suntrust (NYSE: STI), Fifth Third (Nasdaq: FITB)
  
  
• January 23 - Halliburton (NYSE: HAL), Albemarle (NYSE: ALB), CSX Corp. (NYSE: CSX)
  
  
• January 24 - Apple (Nasdaq: AAPL), Keycorp (NYSE: KEY)
  
  
• January 25 - ConocoPhillips (NYSE: COP), Boeing (NYSE: BA), Netflix (Nasdaq: NFLX), Sandisk (Nasdaq: SNDK)
  
  
• January 26 - AT&T (NYSE: T), Eastman Kodak (NYSE: EK), Cypress Semi (Nasdaq: CY)
  
  
• January 27 - Chevron (NYSE: CVX), Proctor & Gamble (NYSE: PG)
  
  
• January 31 - Pfizer (NYSE: PFE), Seagate (Nasdaq: STX)

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