A week ago, Alcoa Corporation (NYSE:AA) came out with a strong set of first-quarter numbers that could potentially lead to a re-rate of the stock. The company beat both earnings and revenue forecasts, with revenue of US$2.9b, some 9.1% above estimates, and statutory earnings per share (EPS) coming in at US$0.93, 67% ahead of expectations. Following the result, the analysts have updated their earnings model, and it would be good to know whether they think there’s been a strong change in the company’s prospects, or if it’s business as usual. So we gathered the latest post-earnings forecasts to see what estimates suggest is in store for next year.
After the latest results, the nine analysts covering Alcoa are now predicting revenues of US$10.3b in 2021. If met, this would reflect an okay 5.1% improvement in sales compared to the last 12 months. Alcoa is also expected to turn profitable, with statutory earnings of US$2.61 per share. In the lead-up to this report, the analysts had been modelling revenues of US$10.2b and earnings per share (EPS) of US$2.51 in 2021. So the consensus seems to have become somewhat more optimistic on Alcoa’s earnings potential following these results.
The consensus price target rose 13% to US$33.41, suggesting that higher earnings estimates flow through to the stock’s valuation as well. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company’s valuation. There are some variant perceptions on Alcoa, with the most bullish analyst valuing it at US$43.00 and the most bearish at US$13.00 per share. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. The analysts are definitely expecting Alcoa’s growth to accelerate, with the forecast 6.9% annualised growth to the end of 2021 ranking favourably alongside historical growth of 0.1% per annum over the past five years. Other similar companies in the industry (with analyst coverage) are also forecast to grow their revenue at 5.8% per year. Alcoa is expected to grow at about the same rate as its industry, so it’s not clear that we can draw any conclusions from its growth relative to competitors.
The Bottom Line
The biggest takeaway for us is the consensus earnings per share upgrade, which suggests a clear improvement in sentiment around Alcoa’s earnings potential next year. They also reconfirmed their revenue estimates, with the company predicted to grow at about the same rate as the wider industry. There was also a nice increase in the price target, with the analysts clearly feeling that the intrinsic value of the business is improving.
Keeping that in mind, we still think that the longer term trajectory of the business is much more important for investors to consider. At Simply Wall St, we have a full range of analyst estimates for Alcoa going out to 2023, and you can see them free on our platform here..
Before you take the next step you should know about the 2 warning signs for Alcoa that we have uncovered.
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