Should Alcoa (AA) Split Itself Up? Some Say 'Yes'...

Alcoa (NYSE: AA) shares are higher on the session due in part to a settlement with Alba today, as well as analysts seeing more upside if the aluminum giant would split up the company.

Expected to report third-quarter 2012 results today, shares of Alcoa are trading at a lower multiple than about 94 percent of peers and at a 60 percent discount to sales, according to Bloomberg-compiled data. The dip was clearly the result of aluminum prices, which have halved over the last 18 months to nearly a three-year low.

Analysts think that splitting up the aerospace division and other units from its mining and smelting operations could unlock 63 percent of upside, to about $14.82 per share as of yesterday's close. Dahlman Rose noted that Alcoa's flat-rolled and engineered products operations are worth more than the Company's entire $9.73 billion market cap. Demand in the units has been driven by airplane giants like Boeing (NYSE: BA) and Lockheed (NYSE: LMT) as well as a resurgence in the auto industry.

Another analyst from Davenport sees a spin off of the flat-rolled aluminum sheets and engineered-products businesses as setting up Alcoa for a potential takeover. The same thing happened to Alcan after it spun off its aluminum sheet unit in 2005. The company was acquired by Rio Tinto (NYSE: RIO) in 2007 while the aluminum sheet business was bought up by Hindalco Industries.

Alcoa is expected to report a break even loss after the close of trading Tuesday. That would be the second-straight quarterly loss and a drop from profit of 15 cents per share in the same period last year.

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