Norsk Hydro: Analysts’ Ratings amid Higher Aluminum Prices
Norsk Hydro (NHY) released its 3Q17 earnings on October 25. The company reported revenues of 22.8 billion Norwegian krone (~$2.8 billion) in 3Q17.
Century Aluminum (CENX) released its 3Q17 earnings on October 26. The company reported revenues of $401 million in 3Q17—compared to $389 in 2Q17.
Alcoa (AA) released its 3Q17 earnings on October 18 and reported revenues of $2.96 billion in the quarter. Alcoa posted revenues of $2.85 billion in 2Q17.
We’re towards the end of the 3Q17 earnings season. Most aluminum producers have already released their 3Q17 results.
China is curtailing some of its aluminum capacity to mitigate the country’s rising pollution levels.
China exported 370,000 metric tons of unwrought aluminum in September, compared to 410,000 metric tons in August.
According to consensus estimates compiled by Thomson Reuters, Alcoa is expected to post revenues of $2.97 billion in 3Q17.
Alcoa carries a mean one-year target price of $50.92—7.7% potential upside compared to its closing price on October 13.
Alcoa (AA) is expected to post an adjusted EBITDA of $536 million in 3Q17—compared to $483 million in 2Q17 and $265 million in 3Q16.
We’re into the 3Q17 earnings season. Alcoa (AA) is expected to release its 3Q17 earnings on October 18 after the markets close.
For aluminum producers, the all-in aluminum price consists of the price of aluminum plus physical aluminum premiums. These premiums are regional in nature.
Lower Chinese aluminum production is positive for companies like Alcoa. Lower production resulted in fewer exports in the last month.
Since China is the largest aluminum consumer, it’s important for investors to keep track of the country’s aluminum demand (ACH) (FXI).
China has been taking several measures to address its rising pollution levels—curtailing polluting steel, aluminum, and coal units.
In 2017, Alcoa has outperformed Freeport by a wide margin. While Alcoa is trading with YTD gains of 61.6%, Freeport has only risen 6.6% in 2017.
Based on consensus estimates, Alcoa carries a mean one-year target price of $47.25—4.1% upside compared to its closing price on September 22.
Alcoa (AA) closed at $45.38 on September 22. It’s trading with YTD (year-to-date) gains of 61.6% based on the closing price on September 22, 2017.
Recently, some of the analysts raised Alcoa’s target price. On September 13, BMO raised Alcoa’s target price from $45 to $60.
Although we don’t have historical valuation multiples for Alcoa because the stock was split late last year, its valuation multiples look reasonable.
Analysts seem to be factoring lower-than-current aluminum prices next year when it comes to aluminum producers’ 2018 revenue estimates.