Alcoa

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Alcoa

• Matt Bailey

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Company Overview

• Worlds largest producer of aluminum and supplier
  of alumina
• 2/3 of revenue comes from Aluminum products
• Non Aluminum Products
• Precision castings, consumer products, food
  packaging, vinyl siding
• Operations broken into 6 Segments
• Alumina, Primary Metals, Flat Rolled, Extruded
  Products, Engineered Solutions,
  Packaging/Consumer

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Market Profile

• Primary demand factor is economic growth
• Largest Markets for aluminum
• Transportation
• Containers/Packaging
• Construction
• Alcoas Market Share 14.5 in 2005
• Worldwide CAGR in aluminum consumption from
  1996-2005 4.8

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Financial Ratios
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Value Criteria
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Valuation

• Target Price
• 2007 EPS 2.80 (VL) 2.93 (SP)
• Industry P/E 12.52
• 35.93
• 2 Stage FCFE
• 50.58
• 43.16

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Valuation

• SP 12 Month Target Price 35.00
• Yahoo 12 Month Target Price 33.62
• Morningstar Fair Value 40.00
• Consider buy at 30.84

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Technical Analysis
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Developments

• Price of Aluminum expected to increase in 2007,
  offsetting possible fall in demand.
• Industry Consolidation
• Restructuring
• Cutting underperforming assets
• New sources of revenue to offset pressure from
  Aluminum prices
• Strong global demand for alumina

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Recommendation

• Buy 75 shares
• 75x30.75 (close 12/6) 2306.25
• Materials sector equal to 2.99 of SP 500 (GICS
  Sector Scorecard 12/01/2006)

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Reason for Recommendation

• Stock is Undervalued by 40
• Intrinsic value 43.16
• Trading at low Historical P/E
• Median P/E 20.0
• Increase in Aluminum and Alumina Prices
• Recent Developments
• Industry consolidation and Alcoas strategy to
  get rid of underperforming assets and diversify
  products