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Alcoa (AA) Hits Fresh High: Is There Still Room to Run?

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Have you been paying attention to shares of Alcoa (AA - Free Report) ? Shares have been on the move with the stock up 41.2% over the past month. The stock hit a new 52-week high of $90.95 in the previous session. Alcoa has gained 52.2% since the start of the year compared to the -10.2% move for the Zacks Industrial Products sector and the 24% return for the Zacks Metal Products - Distribution industry.

What's Driving the Outperformance?

The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on January 19, 2022, Alcoa reported EPS of $2.5 versus consensus estimate of $2.04 while it beat the consensus revenue estimate by 1.41%.

For the current fiscal year, Alcoa is expected to post earnings of $8.03 per share on $13.09 billion in revenues. This represents a 17.57% change in EPS on a 7.73% change in revenues. For the next fiscal year, the company is expected to earn $6.27 per share on $12.67 billion in revenues. This represents a year-over-year change of -21.89% and -3.21%, respectively.

Valuation Metrics

Alcoa may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.

On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Alcoa has a Value Score of B. The stock's Growth and Momentum Scores are A and C, respectively, giving the company a VGM Score of A.

In terms of its value breakdown, the stock currently trades at 11.3X current fiscal year EPS estimates, which is a premium to the peer industry average of 11.2X. On a trailing cash flow basis, the stock currently trades at 8.7X versus its peer group's average of 7.4X. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Alcoa currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Alcoa passes the test. Thus, it seems as though Alcoa shares could still be poised for more gains ahead.

How Does AA Stack Up to the Competition?

Shares of AA have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? One industry peer that looks good is Reliance Steel & Aluminum Co. (RS - Free Report) . RS has a Zacks Rank of # 1 (Strong Buy) and a Value Score of B, a Growth Score of C, and a Momentum Score of B.

Earnings were strong last quarter. Reliance Steel & Aluminum Co. beat our consensus estimate by 32.11%, and for the current fiscal year, RS is expected to post earnings of $16.91 per share on revenue of $13.39 billion.

Shares of Reliance Steel & Aluminum Co. have gained 21% over the past month, and currently trade at a forward P/E of 11.17X and a P/CF of 7.16X.

The Metal Products - Distribution industry is in the top 37% of all the industries we have in our universe, so it looks like there are some nice tailwinds for AA and RS, even beyond their own solid fundamental situation.

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