Should You Sell Alcoa Stock before Its Q1 Earnings Release?

• Alcoa will likely report its first-quarter earnings on April 22 after the markets close. The stock has risen sharply from its March lows.
• Aluminum and alumina prices have fallen amid the COVID-19 pandemic. Lower commodity prices could take a toll on Alcoa’s first-quarter earnings.

Alcoa (NYSE:AA) will likely report its earnings for the first quarter of 2020 on April 22 after the markets close. The analysts polled by Thomson Reuters expect the company to post revenues of $2.3 billion in the quarter. In comparison, the company posted revenues of $2.4 billion in the fourth quarter of 2019. The company posted revenues of $2.7 billion in the first quarter of 2019. Analysts expect Alcoa to generate an adjusted EBITDA of $241 million in the first quarter of 2020 and $211 million in the second quarter of 2020. To put that in perspective, the company posted an adjusted EBITDA of $346 million in the fourth quarter of 2019 and $467 million in the first quarter of 2019.

Aluminum and alumina prices have fallen this year amid the COVID-19 pandemic. Aluminum prices tested their lows from the first quarter of 2016. The alumina price index somehow managed to hold above its all-time lows. US Midwest physical delivery premiums have also plummeted. However, given the lag impact in alumina sales, the real impact of lower alumina prices would only be reflected in Alcoa’s second-quarter earnings. Barring the movement in commodity prices, Alcoa expects its first-quarter EBITDA to fall sequentially due to lower earnings in its bauxite operations.

Given the slump in commodity prices, Alcoa’s near-term outlook looks hazy. In a previous article, I noted that both Alcoa and Freeport-McMoRan look like good long-term buys. Alcoa stock has risen sharply from its March lows. In my view, while the long-term story is still intact, it wouldn’t be a bad strategy to take some profits off the table. US stock markets have bounced back sharply even though the pandemic’s economic impact has been rising. Alcoa stock might come under pressure if there’s a weakness in broader markets.

Among the 12 analysts actively covering Alcoa stock, five recommend a “buy,” while seven recommend a “hold.” The stock’s mean consensus target price of $9.93 represents a potential upside of 31% over last week’s closing prices.