Alcoa (NYSE:AA) will report its fourth-quarter and annual 2006 financial results on Tuesday, January 9, and analysts seem to think that things will be bright and shiny for the aluminum producer.

What analysts say:

  • Buy, sell, or waffle? Amongst the 23 analysts covering Alcoa, nearly half say buy, eight say hold, and four dent the enthusiasm with a sell rating.
  • Revenues. For the quarter, revenues are expected to be up by more than 14% to $7.6 billion, while Alcoa is expected to mine annual revenues of $29.9 billion.
  • Earnings. Profits are forecast to come in to Alcoa's coffers in a thick slurry, rising 88% from last year, or $0.66 for the quarter and $2.89 for the year.

What management says:
Management is looking for aluminum consumption to double over the next 15 years because of growth in the economies of China and India, as they are more material intensive in their stage of development than the G7 economies. Alain Belda, Alcoa's chairman and CEO, says, We are well positioned in the upstream to take advantage of the aluminum growth opportunities&We are well positioned downstream to meet demand and value-added products with profitable growth potential in every market that we serve. The company is anticipating that China alone will account for 14% of aluminum demand, and management is expecting there to be an aluminum shortage there, so it expects demand for its products to be particularly intensive.

What management does:
Alcoa says revenues will increase 18% for the year, generating an 82% increase in income from continuing operations and a 94% increase in cash from operations. With high demand and an ability to maintain costs in the environment, Alcoa's margins have been steadily improving, leading to increasing returns on investment.

Margin %

08/05

11/05

02/06

05/06

08/06

Gross

19.2

18.9

20.0

21.6

22.3

Op.

8.5

8.2

9.6

11.8

12.8

Net

5.1

4.7

5.8

6.6

7.1


Efficiency Ratios

08/05

11/05

02/06

05/06

08/06

ROA

4.0

4.1

4.8

6.1

6.8

ROE

10.6

9.2

11.6

13.2

14.8

ROC

6.3

6.4

7.4

9.3

10.3

YOY Revenue Growth

11.4

12.6

13.9

16.4

18.6

YOY Earnings Growth*

(0.8)

(10.5)

22.3

32.0

51.0
*Earnings from continuing operations.
 All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Despite the general bullish sentiment of the analyst community, it's beginning to tarnish a little as the year progresses. Just six months ago there was only one analyst who recommended selling Alcoa stock. Despite the impressive gains by the company over the past year, the stock essentially trades at the same price it did at the start of 2006, even as it sits 19% below its 52-week high.

As was the case back in July, Alcoa continues to present a diverging picture of GAAP profits and free cash flow, primarily because of its investments in refineries, smelters, and mines for aluminum, bauxite, and alumina around the world. Demand in most industries in which Alcoa supplies aluminum have been experiencing double digit growth, with the one exception being the U.S. car manufacturers' market.

With the company trading at a 20% discount to its historical price-to-sales ratio for the past 10 years, and at some of its lowest levels in the past five, Alcoa could be poised for yet another sterling run.

Competitors:

  • Kaiser (NASDAQ:KALU)
  • Alcan (NYSE:AL)
  • Novelis (NYSE:NVL)
  • Century Aluminum (NASDAQ:CENX)
  • BHP Billiton (NYSE:BHP)
  • Norsk Hydro (NYSE:NHY)

Related Foolishness:

Norsk Hydro is an Income Investor recommendation.

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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.