Alcoa To Set Tone Of Earnings Season… Beware? (AA)

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Alcoa, Inc. (NYSE: AA) is set to report earnings after the close on Tuesday and this will both be the first DJIA component to report earnings and it may set the tone for earnings season.  24/7 Wall St. argues over how relevant Alcoa is to the overall picture, but the reality is that there is no reason to fight the tape.  Alcoa transcends many business segments from mining to consumer electronics, from canning outfits to retail, from consumer goods to auto-makers.

We have noted this week and last week how so many key earnings have been tempered down in expectations.  It seems like the bar is being set low here as estimates are -$0.04 EPS and $5.77 billion in revenues. The reason the expectation is low is that the company itself already said just last week that it was dialing down production in the Atlantic basin by a couple or few percentage points.  That might not be the end of the world, but it is hard to expect that Alcoa’s CEO will come out say “Golly, demand is shooting through the roof” out of the blue.

If Alcoa offers guidance, the consensus target for the coming quarter is $0.12 EPS and $6.17 billion in sales.  We still expect Alcoa to maintain that the Aluminum market is expected to double going out to 2020.  Here is the question to ask… “What if Alcoa doesn’t really ratchet down earnings all that much?”  That would likely be considered a real win.

With shares down 2.2% at $9.39 ahead of the report, the 52-week trading range is $8.45 to $17.96.  Thomson Reuters has a consensus price target of $11.70 for Alcoa.

Options traders are braced for a move of close to $0.50 in either direction if we use the speculative puts and calls for April.

Alcoa is still higher than it was at the December lows, but not by much when you consider the first quarter double-digit S&P 500 rally.  The 50-day moving average is up at $10.18 and that acted as hard resistance over the last month.  The 200-day moving average is all the way up at $11.02 and the 200-day moving average has not been a real consideration going back to last summer.