Tomahawk, WI 01/13/2014 (BasicsMedia) – Alcoa Inc (NYSE:AA) issued a widely unpopular Q4 data which hurt the feelings of most investors. The company reported net income at just 4 cents, falling below analysts’ prediction by about 33 percent. However, any investors who have been tracking the aluminum market are not surprised that Alcoa missed expectations in its Q4.

It is a known fact that aluminum market is under pressure largely due to decline in prices. Once this fact is known, it is easy to see that in fact Alcoa did get several things right in the quarter. Out of the realization that general aluminum market is non-performing, the company answered this problem by growing its value-add segment. As a result, this segment account for more than 57 percent of the company’s overall revenue for the just reported quarter.

Aluminum market growth for 2014 remains the same as it was in 2013 at 7 percent. In order to make any gains in this condition, Alcoa Inc (NYSE:AA) is boosting its value-add production where by some new factories are expected to start production this year while others will depart production in the course of the year depending on the risks positions.

By venturing strongly into aerospace and automobile value-add products, Alcoa hopes to avoid the stress in aluminum market due to low prices. As such, this stock presents opportunities and challenges which investors should explore when it comes to thinking about investment in AA.

Opportunities

Alcoa Inc (NYSE:AA) is strong in multiple areas. The company offers compelling net income growth, notable return on equity and very impressive earnings per share. Note these strengths exist despite the troubles facing the general aluminum market.

Nonetheless, these strengths are challenged by weaknesses such as poor profit margins (of course, due to low prices), high debt levels and weak operating cash flow.

Highlights

Alcoa Inc (NYSE:AA) latest net income figure suggests about 116 percent increase from a year ago. This rise exceeds the S&P 500 as well as the Metals & Mining industry. The company has not been very predictable in its earnings per share and at best this column remains volatile. However, we can see the company posting EPS growth in the coming year. At the moment the market is looking for earnings improvement to $0.35 from $0.17 realized in the previous fiscal.

Alcoa Inc (NYSE:AA) is standing weak on net profit margin (0.41 percent) which is not only lower than industry average, but also significantly lower than what is desirable. Note despite this rather low profit margin (16.77 percent) environment, the company managed to increase this column over the past fiscal.

Alcoa Inc (NYSE:AA)’s net operating cash flow has decrease almost 18 percent or $214 million over one year. This makes the company’s cash position not only weaker than the industry average, but also volatile for short-term cash needs.

Focus on value-add

That Alcoa Inc (NYSE:AA) is looking to the aerospace and automotive industry with special focus on value-add aluminum products give it a good standing to wither the price decline in the broader aluminum market. The company’s opportunities in this sector can be seen coming from China were aerospace industry is poised for a busy year in 2014.

Among the automakers, Alcoa Inc (NYSE:AA) is already receiving good overtures from companies like Ford Motor Company (NYSE:F) which has indicated strong intent to start building fuel efficient vehicles featuring light but strong body materials.

Conclusion

Alcoa Inc (NYSE:AA) present unique opportunity for investor seeking a pie of the mining industry, more so from the aluminum side.

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