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Why Are Alcoa Shares Trending Higher?

Story Highlights

Alcoa reported stronger-than-expected Q2 results, topping both earnings and revenue estimates. Furthermore, investors cheered the $500 million in incremental buybacks.

Alcoa (AA) shares gained almost 6% during the extended trading session on July 20 after the company delivered impressive second-quarter results. AA also rewarded shareholders with additional buybacks worth $500 million.

Based in the U.S., Alcoa engages in the production of bauxite, alumina, and aluminum products.

Alcoa’s Q2 Beat

Adjusted earnings of $2.67 per share climbed 79.2% year-over-year and beat analysts’ expectations of $2.49 per share. The company reported earnings of $1.49 per share for the prior-year period.

Revenues jumped 28.6% year-over-year to $3.64 billion, exceeding consensus estimates of $3.48 billion. The increase in revenues reflected a surge in shipments as well as improved higher pricing.

Alcoa Increases Buybacks Worth $500 Million

Concurrent with the earnings call, the company announced an additional $500 million authorization for future stock repurchases.

In the first half of 2022, the company made share repurchases worth $350 million, and $150 million remains available for further repurchases from the prior authorization.

Alcoa’s 2022 Shipment Outlook

Management provided the shipment outlook for FY2022. Aluminum segment shipments are expected to remain unchanged from the prior forecast, in the range of 2.5 million metric tons to 2.6 million metric tons in 2022.

However, for alumina and bauxite, the company lowered its outlook.

Due to the lower shipments in the first half, alumina shipments are forecast to range between 13.6 million metric tons and 13.8 million metric tons. Meanwhile, bauxite shipments will range between 44 million dry metric tons and 45 million dry metric tons due to ongoing disruptions in the Atlantic bauxite market and lower demand from refineries in the first half.

AA CEO’s Comments

Alcoa CEO, Roy Harvey, commented, “We had a strong first half of 2022 with nearly $2 billion in Adjusted EBITDA and cash flows that have enabled more buybacks under our existing stock repurchase program as well as continued quarterly dividend payments.”

Looking ahead, he added, “As we progress into the remainder of this volatile year, we remain focused on our strategic priorities and our vision to reinvent the aluminum industry for a sustainable future.”

Wall Street’s Take on Alcoa

Despite the quarterly beat, Jefferies analyst Christopher LaFemina decreased the price target on Alcoa to $60 (33.16% upside potential) from $75 and reiterated a Buy rating.

The rest of the Wall Street community is cautiously optimistic about the stock, with a Moderate Buy consensus rating based on five Buys and Holds, each. The average Alcoa price target of $71.60 implies a 58.90% upside potential to current levels.

High Smart Score for AA

AA scores a 9 out of 10 on TipRanks’ Smart Score rating system, indicating that the stock has strong potential to outperform market expectations.

Concluding Thoughts

Alcoa shares have gained 21.5% over the past year, massively outperforming benchmark indices that are down almost 10% over the same period.

An upbeat quarterly result combined with higher buybacks reflects strong management confidence in the company’s future prospects and bodes well for the stock.

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