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Alcoa (AA) Subsidiary to Redeem $500M of Notes Using Cash

Alcoa (AA) to redeem 7.00% notes due to expire in 2026 through its subsidiary Alcoa Nederland. The redemption will be funded with available cash and i...

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This story originally appeared on Zacks

Alcoa Corporation AA yesterday communicated its subsidiary Alcoa Nederland Holding B.V.’s plans to redeem a $500-million principal amount of notes. Alcoa Nederland is the issuer of the senior notes and already served notice related to the redemption.



The share price of Alcoa increased 0.73% yesterday, with the trading session ending at $44.37.

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Inside the Headlines

As mentioned, the to-be-redeemed notes carry a coupon rate of 7.00% and are due to expire in 2026. The redemption price will comprise 103.5% of the notes’ principal amount and interest, which are accrued and unpaid.



The note redemption will be complete on Sep 30, 2021, and will be funded through Alcoa’s available cash.



We believe that the redemption of senior notes is in sync with Alcoa’s efforts to strengthen its balance sheet with debt reduction. Exiting the second quarter of 2021, the company’s cash and cash equivalents were $1,652 million, increasing 2.8% from the 2020-end balance of $1,607 million. Long-term debts were $2,216 million, down 10% from $2,463 million at the end of 2020.



The company’s total debt/total capital was at 29% at the end of the second quarter of 2021, down from 33% at the end of 2020. Also, its total debt/total equity of 40.9% is lower than 49.1% at the end of 2020.



In April 2021, Alcoa redeemed its senior notes worth $750 million using funds from $500 million worth of senior notes offerings (carrying a coupon rate of 4.125% and expiring in 2029) and cash on hand. The redeemed senior notes’ coupon rate was 6.75% and had expiration in 2024.

Zacks Rank, Price Performance and Earnings Estimates

With a market capitalization of $8.2 billion, Alcoa currently carries a Zacks Rank #3 (Hold). Healthy customer demand, effective pricing and operational execution, economic recovery, and efforts to strengthen the balance sheet are tailwinds for the company. Inflation in energy and raw material prices might be concerning.



In the past three months, the company’s shares have gained 11% against the industry’s decline of 1.1%.

Zacks Investment Research

Image Source: Zacks Investment Research

In the past 60 days, the Zacks Consensus Estimate for its earnings increased 1.5% to $1.38 per share for third-quarter 2021 and 1.2% to $4.89 for 2021. The consensus estimate of $4.35 for 2022 suggests a decline of 11.9% from the 60-day-ago figure of 28 cents.

Alcoa Corp. Price and Consensus

Alcoa Corp. Price and Consensus

Alcoa Corp. price-consensus-chart | Alcoa Corp. Quote

Stocks to Consider

Three better-ranked stocks in the Zacks Industrial Products sector are Kadant Inc. KAI, Applied Industrial Technologies, Inc. AIT and Ituran Location and Control Ltd. ITRN. While Kadant currently sports a Zacks Rank #1 (Strong Buy), both Applied Industrial and Ituran Location carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.



In the past 60 days, earnings estimates for these stocks have improved for the current year. Further, positive earnings surprise for the last reported quarter was 33.11% for Kadant, 27.97% for Applied Industrial and 18.92% for Ituran Location.



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