How to Play Options for an Alcoa Earnings Surprise

By Andrew Keene  JAN 08, 2013 1:10 PM

Alcoa has worked to address its $8.3 billion in debt through cost-cutting measures, and analyst estimates for the company are bullish.

 


Analyst estimates for Alcoa Inc. (NYSE:AA), the world's third-largest aluminum producer, are bullish with expectations of $0.06 earnings per share on overall quarterly revenue of $5.6 billion. 

If predictions hold as expected, this will be a sharp contrast to last years' $0.03-per-share loss on earnings of $5.99 billion. Reasons for favorable sentiment included a rebound in aluminum prices, which are forecast to grow by 6.5% in 2013.  With improving numbers from China pointing to a recovery, increased infrastructure spending in the region could spur demand beyond the price forecast for the year.

Alcoa has worked to address pessimists' primary concern -- its $8.3 billion in debt -- through cost-cutting measures. Last year it shut down a dated smelter in Italy, and partnered to build an $10.8 billion plant in Saudi Arabia. Combining all stages of aluminum production, the facility houses Alcoa's lowest cost production to date.

Trade: Buying the AA Weekly 9 Calls for $.25
Risk: $25 per 1 lot
Reward: Unlimited
Breakeven: $9.25

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No positions in stocks mentioned.