Why Gabelli & Co Continues To Love Alcoa Stock

Alcoa reported disappointing third-quarter results on Thursday, with adjusted EPS of 0.07 and adjusted EBITDA of $698 million.

“While a good piece of the miss vs $0.13 per share consensus related to the timing of primary metal headwinds, corporate overhead (inclusive of metal price lag), and global rolled products weakness in emerging markets, engineered products and solutions had very weak margins and uninspiring sales growth,” Gabelli & Company explained.

Related Link: Alcoa Q3 Earnings Miss Expectations, Shares Slide

Slight Disappointment, But Still A Buy

While the experts demonstrated disappointment in the EPS segment weakness, they continue to rate the stock a Buy on the back of its “discount to PMV, separation catalyst, and auto growth opportunities.”

Gabelli & Co now models the legacy EPS business to generate 21.5 percent EBITDA margins in 2016, at the low end of management’s guidance.

Alcoa And Firth Rixson

For the recently acquired Firth Rixson, the firm estimates 2016 revenue of $1.45 billion and EBITDA of $245 million. Their PMV for 2016, however, was trimmed from $14.50 per share to $14 per share, “as EBITDA shifts from high multiple downstream to lower multiple alumina,” and they now use 75 percent of book value for hidden assets, revealing some challenges in that portfolio.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.

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