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Why Alcoa Stock Fell as Much as 11% Today

By Reuben Gregg Brewer - Jan 21, 2021 at 11:56AM

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Even though the giant aluminum maker had some good earnings news to report, its bad news sent the share price tumbling.

What happened

Shares of aluminum producer Alcoa (AA) headed lower in Thursday morning trading, and were down by 11% as of 11:48 a.m. EST. That might come as something of a surprise, given the company's fourth-quarter results. But there was more to its latest earnings report than meets the eye.

So what

The interesting thing about Alcoa's fourth-quarter 2020 financial results was that the company handily beat analysts' expectations. It posted earnings per share of $0.26 versus Wall Street's call for $0.11, which is a huge difference. Equally important, it was a notable rebound from the company's third-quarter adjusted loss of $1.17 per share. All in, it appears that Alcoa's business has started to recover from the pandemic-driven slump it fell into earlier in 2020.  

A person pouring molten aluminum.

Image source: Getty Images.

An earnings beat like that would normally lead to a stock price increase, not a big decline. The problem is that in the release and during Alcoa's Q4 earnings conference call, management provided a less than upbeat outlook for the current quarter. The company expects increasing costs and weak bauxite pricing to be notable headwinds. These factors could constrain earnings in a meaningful way. So, despite the good Q4 performance, investors took a more cautious approach and sold off the shares.   

Now what

Aluminum and related products are commodities that vary in price based on the supply and demand situation. Producing aluminum, meanwhile, is a complex and, at times, expensive process. These issues are simply part of Alcoa's business and there's nothing that investors can do about them. Thus, big ups and downs in its stock price aren't exactly uncommon. Conservative investors might want to err on the side of caution and avoid this highly cyclical name.

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