Alcoa (AA) Fundamental / Technical Stock Outlook:
Shares of Alcoa (NYSE: AA) have climbed 75% over the past year but are only up 1% in 2018, a name seen to benefit from the reflationary environment.
The $9.88B aluminum Company trades 12.7X Earnings, 0.82X Sales, 2.2X Book and 16.3X FCF with a strong balance sheet.
Alcoa (AA) is forecasting 16.5% topline growth this year and EPS growth of 51%. The company appears to be emerging out of a commodity down-cycle with world-class assets, an improved balance sheet, and is a low cost operator.
On the chart below (via TradingView) AA shares are in a rising channel since late 2016 lows and recently got ahead of itself on the move above $60. Shares pulled back to the 50 day moving average and based looking to now extend higher.
Alcoa’s options activity has seen a strong bullish bias the past month, including 10,000 May $57.5 calls opened in late April with shares at $51.20. A buyer of 5,000 June $55 calls for $3.38M on 4/20 remains in open interest, as do 2,000 June $46 calls opened back on 4/11 now deep in the money.
Looking further out, the Jan. 2019 $65 calls were bought 2,800X for $1M on 4/12 and the Jan. 2019 $55 calls 6,750X on 12/18/17 for $2.3M, both remain in open interest. A view from the OptionsHawk Notable Trade Database is below:
Jefferies initiated coverage last week at Buy with a $65 target, and Deutsche Bank on 4-23 raised its target to $70 noting Alcoa is one of the few aluminum companies to benefit when all the commodities in the supply chain increase. JP Morgan hiked its target to $86 on 4-19 citing higher alumina prices and optionality to invest in its third-party bauxite business as well as potential to return cash to shareholders. BMO has an $80 target noting a tight aluminum market and sees $100/share as fundamentally justifiable with an aluminum deficit from China’s supply-side reforms.
Potential Trade Idea: Long the Alcoa (AA) June $55 Calls at $2.50 or Better (Target Exit at $5)
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The author does not have a position in mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.