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Aluminum giant Alcoa (AA - Analyst Report) is set to release its fourth-quarter 2013 results after the closing gong on Jan 9.  

In the last quarter, the New York-based company delivered an 83% positive earnings surprise riding on productivity gains, strong demand from auto makers and cost-cutting measures.

While many may think that Alcoa is no longer a major earnings season bellwether following its exclusion from the Dow Jones Industrial Average last year, its results will put a spotlight on demand trend for aluminum across a gamut of industries, which is closely linked to levels of economic activity.

Alcoa is also expected to provide some color on demand for the metal across end-markets for 2014 in its fourth quarter commentary. Let’s see how things are shaping up for this announcement.

Factors to Consider this Quarter

While Alcoa is seeing strength across aerospace and auto markets where demand for aluminum remains healthy, it is expected to face sustained pricing pressure in the fourth quarter. Alcoa has taken up a number of restructuring measures (including closure of smelters) and is aggressively pursuing cost-cutting actions amid a weak price environment.

Alcoa is grappling with weak aluminum pricing. London Metal Exchange (LME) cash price fell 7% year over year in the third quarter, hurting the company’s sales in the process. Lower pricing is expected to continue to weigh on its sales in the fourth quarter.

Moreover, Alcoa is expected to see continued softness in non-residential construction market in Europe in the December quarter. Demand for defense spare parts and industrial gas turbine is also expected to be sluggish. Pricing across Europe and China is expected to be weak while energy costs will be higher in Australia.

Earnings Whispers

Our proven model does not conclusively show that Alcoa is likely to beat the Zacks Consensus Estimate in the fourth quarter. That is because a stock needs to have both a positive Earnings ESP (Expected Surprise Prediction) and a Zacks Rank of #1, 2 or 3 for this to happen. That is not the case here, as you will see below.

Zacks ESP: ESP for Alcoa is 0.00%. This is because both the Most Accurate Estimate and the Zacks Consensus Estimate are pegged at 6 cents.

Zacks Rank #3 (Hold): Alcoa’s Zacks Rank #3 lowers the predictive power of ESP. The Zacks Rank #3 when combined with an ESP of 0.00% makes surprise prediction difficult. We caution against stocks with Zacks Ranks #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions momentum.
 
Other Stocks to Consider

Here are some other mining companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Hecla Mining Co. (HL - Snapshot Report) has earnings ESP of +50.00% and carries a Zacks Rank #2 (Buy).

Compania de Minas Buenaventura S.A.A. (BVN - Snapshot Report) has earnings ESP of +39.13% and holds a Zacks Rank #3 (Hold).

Pretium Resources Inc. (PVG - Snapshot Report) has earnings ESP of +25.00% and carries a Zacks Rank #3 (Hold).

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