Investing

Earnings Previews: Alcoa, Kansas City Southern

The new earnings season rolls along Thursday afternoon and continues its surge before markets open on Friday.

As a reminder of Thursday morning’s action, three financial sector firms will be reporting earnings: Bank of America, Citigroup and BlackRock.  We also previewed four other notable earnings out Thursday morning: Delta Air Lines, PepsiCo, Rite Aid and United Healthcare.

Here are previews of two nonfinancial companies reporting Thursday afternoon and Friday morning. Our coverage of financial firms’ earnings is contained in a separate story.

Alcoa

Alcoa Corp. (NYSE: AA) reports late Thursday, and the stock has added almost 340% to its share price over the past 12 months. In the past 10 weeks alone, shares have jumped nearly 75%.

It is a bull market for commodities and commodities producers. The spot price for aluminum has risen by about 55% over the past 12 months, roughly equal to the increase in spot copper prices and well above the spot gold price increase of around 3.4%. Last month, analysts at Morgan Stanley stated a preference for aluminum due not only to rising demand from automakers and aircraft manufacturers but also to rising demand from China.

Of the 14 analysts covering Alcoa, nine rate the stock a Buy or Strong Buy and the other five rate the shares at Hold. The consensus price target on the stock is $30.82, and the shares traded Wednesday morning at around $33.25. At the high target of $43, the upside potential is around 29%.

Wall Street is expecting earnings per share (EPS) of $0.46, far better than last year’s first-quarter loss per share of $0.23. Revenue is forecast to rise 11.2% to $2.65 billion.

The stock currently trades at around 13.9 times expected 2021 EPS, 14 times estimated 2022 EPS and 11.2 times estimated 2023 earnings. The stock’s 52-week trading range is $6.38 to $34.29. Alcoa does not pay a dividend.

Kansas City Southern

Reporting first thing Friday is railroad operator Kansas City Southern (NYSE: KSU), which has added almost 35% to its share price in 2020. Another big jump came in mid-March, when Canadian Pacific agreed to pay $25 billion to acquire KSU and create a 20,000-mile rail network uniting Canada, the United States and Mexico.

Rail traffic has improved so far this year, with intermodal traffic up 13.2% year over year and total traffic up 5.2% through April 3. Grain shipments have accounted for the bulk of the gain, while petroleum shipments are down 14.4%, the largest drop in any category.

Of the 19 analysts covering KSU, eight rate the stock a Buy or Strong Buy and the others rate the shares at Hold. The consensus price target on the stock is $259.36, and the shares traded Wednesday morning at around $261.33.

When the Canadian Pacific announcement was made, the offer worked out to $275 per KSU share in cash and Canadian Pacific stock. Until the acquisition is completed, KSU is basically a tracking stock for Canadian Pacific.

Analysts expect KSU to report earnings per share (EPS) of $1.95, essentially flat with earnings in the year-ago quarter. Revenue is forecast to slip by 2.6% to $712.63 million.

The stock currently trades at around 29.2 times expected 2021 EPS and 18.6 times expected 2021 Canadian Pacific EPS. KSU trades in a 52-week range of $122.35 to $269.49, and the railroad pays an annual dividend of $2.16 (yield of 0.83%).