Alcoa Corporation (AA): A Bull Case Theory
Pixabay/Public Domain
Alcoa Corporation (AA) delivered a strong first quarter in 2025, showcasing notable operational improvements and a significant boost in profitability, fueled primarily by rising aluminum prices. While revenue dipped 3% sequentially to $3.4 billion due to softer alumina and aluminum shipments following a strong Q4, net income surged to $548 million, more than doubling the prior quarter's $202 million. Adjusted net income climbed 106% quarter-over-quarter to $568 million, and adjusted EBITDA reached $855 million—Alcoa's highest in several quarters—reflecting solid cost control and a more favorable product mix. Higher realized aluminum prices and easing input costs supported this growth, helping offset seasonal shipment declines and elevated raw material and energy expenses. Operationally, the majority of Alcoa's facilities posted increased production, all while maintaining a strong safety record.
Strategically, Alcoa moved to reinforce its balance sheet and production capacity. A $1 billion debt refinancing in Australia enabled the company to repurchase nearly $890 million of 2027 and 2028 notes, extending debt maturities and lowering interest costs. Additionally, Alcoa formed a joint venture with IGNIS EQT to restart its San Ciprián smelter in Spain. This initiative, with Alcoa holding a 75% stake, fulfills a prior workforce agreement and brings in energy expertise to stabilize power costs at the facility. Though expected to generate up to a $100 million loss and $110 million cash outflow during ramp-up, the JV preserves critical smelting capacity in Europe and positions the site for future profitability. Management also highlighted ongoing deleveraging and portfolio repositioning efforts, including full acquisition of Alumina Limited and an agreement to exit the Ma'aden JV by Q2.
However, investors are closely watching the impact of a newly imposed 25% U.S. tariff on Canadian aluminum imports, which took effect in March. Alcoa absorbed about $20 million in related costs during Q1, but the CFO warned that a full-quarter impact would be closer to $105 million, with an estimated $100 million annual drag on earnings after offsets. Despite forecasts, the Midwest Premium didn't rise sharply, staying below expected levels due to pre-tariff stockpiling and weak market sentiment. As U.S. inventories normalize, this could change. Altogether, while tariffs present a near-term earnings headwind, Alcoa's operational momentum, cost discipline, and strategic moves create a solid foundation for navigating uncertainty, making it a potential compelling investment that investors should watch out for.
Alcoa Corporation (AA) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 47 hedge fund portfolios held AA at the end of the fourth quarter which was 42 in the previous quarter. While we acknowledge the risk and potential of AA as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article was originally published at Insider Monkey.
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