Earnings Beat: Alcoa Corporation Just Beat Analyst Forecasts, And Analysts Have Been Updating Their Models
Alcoa Corporation (NYSE:AA) defied analyst predictions to release its first-quarter results, which were ahead of market expectations. The company beat both earnings and revenue forecasts, with revenue of US$2.9b, some 9.1% above estimates, and statutory earnings per share (EPS) coming in at US$0.93, 67% ahead of expectations. The analysts typically update their forecasts at each earnings report, and we can judge from their estimates whether their view of the company has changed or if there are any new concerns to be aware of. We thought readers would find it interesting to see the analysts latest (statutory) post-earnings forecasts for next year.
See our latest analysis for Alcoa
After the latest results, the nine analysts covering Alcoa are now predicting revenues of US$10.3b in 2021. If met, this would reflect a modest 5.1% improvement in sales compared to the last 12 months. Earnings are expected to improve, with Alcoa forecast to report a statutory profit of US$2.61 per share. Before this earnings report, the analysts had been forecasting revenues of US$10.2b and earnings per share (EPS) of US$2.51 in 2021. The analysts seems to have become more bullish on the business, judging by their new earnings per share estimates.
The analysts have been lifting their price targets on the back of the earnings upgrade, with the consensus price target rising 13% to US$33.41. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. Currently, the most bullish analyst values Alcoa at US$43.00 per share, while the most bearish prices it at US$13.00. This is a fairly broad spread of estimates, suggesting that analysts are forecasting a wide range of possible outcomes for the business.
Taking a look at the bigger picture now, one of the ways we can understand these forecasts is to see how they compare to both past performance and industry growth estimates. It's clear from the latest estimates that Alcoa's rate of growth is expected to accelerate meaningfully, with the forecast 6.9% annualised revenue growth to the end of 2021 noticeably faster than its historical growth of 0.1% p.a. over the past five years. Compare this with other companies in the same industry, which are forecast to grow their revenue 5.8% annually. Alcoa is expected to grow at about the same rate as its industry, so it's not clear that we can draw any conclusions from its growth relative to competitors.
The Bottom Line
The most important thing here is that the analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Alcoa following these results. Happily, there were no real changes to sales forecasts, with the business still expected to grow in line with the overall industry. We note an upgrade to the price target, suggesting that the analysts believes the intrinsic value of the business is likely to improve over time.
With that in mind, we wouldn't be too quick to come to a conclusion on Alcoa. Long-term earnings power is much more important than next year's profits. We have estimates - from multiple Alcoa analysts - going out to 2023, and you can see them free on our platform here.
That said, it's still necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Alcoa , and understanding these should be part of your investment process.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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