Alcoa Corporation Common Stock (AA) fair value

ACCE thesis

Alcoa mines bauxite and refines it into alumina, then smelts that alumina into primary aluminum, selling ingot, billet and alloy products to automotive, packaging and aerospace buyers. The integrated model is the moat: owning its bauxite and alumina supply cushions it when smelter margins swing, and the company's operating margin of 18.4% and gross margin of 19.8% reflect that position in a commodity business. Revenue grew 31.4% over the reported period, and the stock trades at 8.6 times trailing earnings and 8.0 times forward earnings, a multiple that prices in little of the recent growth. With a 74/100 score and a 10.7 billion dollar market cap, the name sits outside the major indices, so it is less covered and may be less efficiently priced. The thesis rests on whether that growth and the 18.2% return on equity hold through the aluminum price cycle, which is the first thing to test in a deeper look.