Alcoa Inc. is scheduled to post its financial results for the third quarter after Tuesday’s closing bell at a time of downbeat commodity prices. However, the aluminum producer can ignore these obstacles if it manages to split its business operations on the 1st of November.
When the company successfully splits into two entities, the higher-margin operations that will compose of auto and aerospace components will be dubbed Arconic. Meanwhile, the other entity will be the producer of aluminum and bauxite.
At present, the shares of the company is changing hands at approximately $31, up by 6 percent on a year-to-date basis. Market players who are seeking for a low-priced stock with the potential of massive gains in the next year or 18 months should definitely buy the shares of Alcoa, instead of trading it.
For the August quarter, analysts estimate an average of 12 cents EPS on $5.33 billion revenue. This figure is higher in comparison to the same quarter in the previous year when Alcoa gained 7 cents per share. For the full-year that will end in the month of December, the earnings are forecasted to plunge by 21 percent on a year-over-year basis to reach 44 cents per share. On the other hand, the full-year revenue is expected to clock in at approximately $20.84 billion. These figures reflect a 7.5 percent drop from the previous year.
Although these estimated earnings and revenue declines for the current fiscal year are not encouraging, it should be noted that this is all part of the greater plan of Alcoa and the result of the restructuring efforts of the company, including exiting low margin business operations.
Based on the estimates for the next fiscal year, which posts at 57 cents per share, the stock of Alcoa is priced at only 18 times those forecasts, while suggesting an earnings growth of 30 percent on a year-over-year basis.
This just means that owning shares of the company now is more about anticipations for the future gains of Alcoa. We believe that investors will reap their earnings once the restructuring efforts and business separation are accomplished.
If the company manages to have an earnings growth of 30 percent next year, the stock of Alcoa is set to hit $35 to $38 in the next year or next 18 months. Moreover, this means that the stock will deliver returns of around 12 percent to 21 percent within the mentioned period.