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Trefis Has A Price Estimate Of $25 For Alcoa's Stock
Trefis Stock Price Estimate
Alcoa is a large mining company engaged in alumina, aluminum and bauxite mining. Through its refining system, it processes bauxite into alumina, which is sold to aluminum division and third-party customers. Aluminum segment consists of Alcoa's smelter system, along with sale of by-products from the smelting process, such as aluminum powder and scrap. Company’s global bauxite mining operations located in Australia, Brazil, Guinea, and the company also has an equity stake in a mine in Saudi Arabia.
Its global competitors are: Rio Tinto, Rusal, BHP Billiton, Chalco, etc.
We arrive at the stock price estimate for Alcoa as:
Stock Price = (Total Revenue x Net Income Margin / Shares Outstanding) x P/E Multiple
Trefis Stock Price Estimate
Net Income Margin
No. of Shares
#1. Estimating Alcoa's Total Revenues:
Total Revenues have increased from $9.3 billion in 2016 to $13.4 billion in 2018, however they are expected to decline 18.4% to $10.9 Billion in 2019, followed by growth of 1.6% to $11.1 Billion in 2020
Our Interactive Dashboard Analysis, Alcoa Revenues: How Does Alcoa Make Money?, Provides An In Depth View Of The Company's Revenues.
Total Revenue (A + B + C)
Alumina Revenue (A)
Aluminum Revenue (B)
Bauxite Revenue (C)
#2. Deriving Alcoa's Net Income:
Net Income increased sharply from a loss of -$400 million in 2016 to a profit of $227 million in 2018, however, we expect it to incur loss of ~88 million in 2019 followed by profit of $233 million in 2020
This decline in 2019 will likely be led by lower revenues and declining margins, while higher profit in 2020 is set to be led by turnaround in revenue and margins
Lower shipments are expected to adversely affect the company’s profitability as the total cost would be attributed to lower volume. Also, restructuring charges related to Spanish operations are also likely to affect margins, which are expected to drop to -0.8% in 2019, from 1.7% in 2018.However, with an increase in revenue, major restructuring cost already incurred and productivity savings from implementing the new operating model, margins are expected to improve to 2.1% in 2020.
Net Income (A * B * 1000)
Total Revenue (A)
Net Income Margin (B)
#3. Determining Alcoa's EPS:
EPS has grown from -$2.19 in 2016 to $1.20 in 2018, and we estimate it to drop sharply to -$0.47 in 2019 before rising to $1.27 in 2020
EPS drop in 2019 can be attributed to lower Net Income, driven by lower revenue and drop in margins, with a turnaround expected in 2020.
EPS (A / B)
Net Income (A)
No. of Shares (B)
#4. Estimating Alcoa's Share Price:
Our Price Estimate of $25 For Alcoa's Stock is based on our Detailed Valuation Model, and implies a 20x P/E Multiple on expected 2020 EPS of $1.27
Trefis Stock Price Estimate (A * B)
P/E Ratio (B)
Comparing Alcoa's Historical P/E Multiple With That of Its Peers
P/E Multiples are based on Share Price at the end of Q3, and reported (or expected) Adjusted Earnings for the full year
Note: As Alcoa's TTM EPS as on 30th September 2019 is negative, the P/E multiple is undefined. As RIO reports half-yearly, the P/E ratio is as on 30th June 2019
Alcoa P/E Ratio
Rio Tinto P/E Ratio
Vale P/E Ratio
Alcoa Revenues: How Does Alcoa Make Money? Alcoa Earnings: Performance and 2019 ForecastHow much could Alcoa add to its Aluminum revenue over the next 5 years?More Trefis Materials Data
DISAGREE WITH OUR FORECASTS? CREATE YOUR OWN
1. How to save your forecasts for Alcoa:
Click on the blue "Try Trefis" button in the header to create an account, then navigate back to this dashboard. Now, any changes you make to these inputs will be auto-saved as a scenario (see left panel of dashboard).
2. How to monitor your scenario vs. actual results
Once you've saved your forecast, you can "rename" your scenario by clicking on the gear icon next to the scenario (on the left panel). For more info, see this quick, 30-sec video (look at the 9 sec mark)
With your forecast saved and named, you can see how well you forecast the company's performance at the end of each period and compare your forecasts to hundreds of other Trefis users who came up with their own forecasts. Lastly, you can share with friends and colleagues to show them how you fared and compare your forecasts to theirs.