Alcoa (AA) to Start Q3 Earnings Season; Declining Aluminum Prices May Weigh

U.S. markets closed very strong Monday afternoon ahead of the start of the third-quarter earnings season Tuesday.

As the first Dow component to report, Alcoa (NYSE: AA) unofficially kicks off earnings season. After the market close, Alcoa is expected to report earnings of 22 cents per share on revenue of $6.24 billion. Such earnings would be a 21 percent sequential decline and 140 percent jump from the 9 cents per share reported in the same period last year.

Alcoa stock fell nearly 40 percent during the quarter and is up over 4 percent since. Shares are down 35 percent since the beginning of 2011.

Shares are currently going for a forward P/E of 8.3x expected fiscal 2012 earnings. At about $10 per share, Alcoa is about 32 percent below its book value of $14.70.

Data from Bloomberg shows nine analysts have a Buy rating on the stock, seven maintain a Hold, and two recommend to Sell. The Street price target average is $14.60, with a low of $10 and high of $18.

Analyst Comments

• J.P. Morgan is looking for earnings of 20 cents per share. "While lower aluminum prices are clearly weighing on our forecasts, we still believe that earnings should see a benefit from company specific initiatives (de-linking of alumina prices, downstream acquisitions, productivity initiatives, etc.) along with gradually improving aluminum prices forecast for the remainder of this year and next," J.P. Morgan said.
  
  
• Deutsche Bank is modeling for earnings of 24 cents per share, stating the number is "driven primarily by a 6% QoQ drop in aluminum prices which will not be compensated for by lagging costs which we expect to be flat QoQ; however, YoY EPS should more than double."
  
  Primary sales volume expected to increase 4 percent sequentially to 754,000 tons. Deutsche said, "We forecast Alcoa's 3Q11 realized aluminum price at $1.27/lb (-6% QoQ), implying a 16c premia to the $1.11/lb benchmark price during quarter (calculated on a ~15 day lag to LME quarter average), while LME aluminum traded between $0.96-1.19/lb in 3Q11 (currently at $0.98/lb)."
  
  
• Dahlman Rose sees earnings of 24 cents per share, but believes "prices have reached the marginal cost of production, a natural price floor." Dahlman argues although many do not believe the economy is entering another 2008 - 09 type of recession, "buying patterns have certainly been altered, as customers are more weary of building inventory in a declining price environment. Such behavior should have a negative effect on raw material producers and processors until an eventual restocking takes place."Here's a brief list of some of the reporting dates for more notable companies.
  
  • October 12th - PepsiCo (NYSE: PEP)
    
    
  • October 13th - J.P. Morgan (NYSE: JPM), Google (Nasdaq: GOOG)
    
    
  • October 18th - BofA (NYSE: BAC), Coca-Cola (NYSE: KO), Goldman Sachs (NYSE: GS), Apple (Nasdaq: AAPL)
    
    
  • October 19th - Morgan Stanley (NYSE: MS), Abbott Labs (NYSE: ABT), U.S. Bancorp (NYSE: USB)
    
    
  • October 20th - AT&T (NYSE: T), KeyCorp (NYSE: KEY), Union Pacific (NYSE: UNP), Capital One (NYSE: COF), Seagate Tech (NYSE: STX)
    
    
  • October 21st - General Electric (NYSE: GE)
    
    
  • October 24th - Caterpillar (NYSE: CAT), Netflix (Nasdaq: NFLX), Sequans Communications (Nasdaq :SQNS)
    
    
  • October 25th - 3M (NYSE: MMM), CIT Group (NYSE: CIT), U.S. Steel (NYSE: X), F5 Networks (Nasdaq: FFIV)
    
    
  • October 26th - Boeing (NYSE: BA), ConocoPhillips (NYSE: COP), Visa (NYSE: V)
    
    
  • October 27th - Hershey (NYSE: HSY), Waste Management (NYSE: WM), Aetna (NYSE: AET)
    
    
  • October 28th - Merck & Co. (NYSEL MRK), Weyerhaeuser Co. (NYSE: WY), Chevron (NYSE: CVX)
    
    
  • October 31st - Humana (NYSE: HUM), Leap Wireless (Nasdaq: LEAP)
    
    
  • November 1st - Pfizer Inc. (NYSE: PFE), Allstate (NYSE: ALL)
    
    
  • November 2nd - MasterCard (NYSE: MA), Time Warner (NYSE: TWX)
    
    
  • November 3rd - Cigna (NYSE: CI), Eastman Kodak (NYSE: EK), NYSE Euronext (NYSE: NYX), CBS Corp. (NYSE: CBS), Skullcandy (Nasdaq: SKUL)

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