It's Time To Pay Attention To What Alcoa Is Saying Alcoa (NYSE: AA) may have lost its status as the market bellwether but its results are something investors should pay attention to. The company has been working hard to restructure...

Alcoa Is Emerging From A Massive Turnaround Effort

Alcoa (NYSE: AA) may have lost its status as the market bellwether but its results are something investors should pay attention to. The company has been working hard to restructure the business, divest itself of underperforming assets, resolve disputes, and tighten up the operation. Those efforts have been paying off and when combined with the current demand environment for aluminum, are driving the company to record results.

"We had a transformative year in 2021; we posted our highest ever annual net income, returned cash to our stockholders, and significantly reduced our debt and pension obligations," said Alcoa President and Chief Executive Officer Roy Harvey. "Our performance demonstrates that our long-term strategies are delivering value and strengthening Alcoa, so we can be successful through all phases of the commodity cycle."

Alcoa Beats, Widens Margins And Guides Strongly

Alcoa had a very good quarter and one that has it set up for capital returns in 2022. The company reported $3.34 billion in net revenue for a gain of 39.7% over last year which beat the consensus by 30 basis points. The 30 basis point beat isn't all that strong but when combined with margin strength it did result in very strong earnings. The gains in revenue are driven both by volume and price increases for aluminum that resulted in a 7% quarter-to-quarter increase and the highest 4th quarter take in 4 years.

Moving down to the margin and income the news is mixed but understandably so. The company reported a GAAP loss of $392 million but that is offset by $1.1 billion in restructuring costs and charges. When backing that out, among other adjustments, the company brought in $896 in adjusted EBITDA for a gain of 23% sequentially and a company record. On the bottom line, the $2.11 GAAP loss looks far worse than it while on an adjusted basis the $2.50 in profits beat the consensus by $0.59 and the company is guiding for similar strength in 2022.

Alcoa did not give formal guidance but said it expected Q1 business to be comparable to Q4 and for full-year results to show some growth. Digging into the details, the company's growth will be spotty on a segment basis but strength in the alumina segment should be more than enough to offset the difference.

Alcoa Cleans Up The Balance Sheet, Pays A Dividend

Alcoa has been using its increased and improved cash flow to pay down debt and return capital to shareholders. The best news is the company's cash balance is on the rise despite the restructuring effort, repurchasing stock, and paying a dividend. Alcoa initiated a dividend last quarter at $0.10 quarterly or $0.40 annually which is good for a yield of 0.65% with shares trading near $60. The company also bought back $150 million in shares and is expected to repurchase shares on an ongoing basis.

The Technical Outlook: Alcoa Breaks Out To New Highs

Alcoa recently broke out to a new high that has very bullish implications for the stock. The shares broke above the 2018 resistance levels to reach the highest levels since before the Housing Bubble burst and the Great Financial Crisis began. This is being driven by the company's performance, the performance we do not see ending soon, and should carry the stock up to the $90 to $100 range within the next couple of years.