Alcoa Inc (NYSE:AA) Transforming Itself For A Better Tomorrow

Even a push from the renowned rating agency S&P has failed to propel the shares of metal company, Alcoa Inc (NYSE:AA). In a report released yesterday, S&P analyst Sterne Agee wrote that he is raising the outlook on Alcoa to stable from negative. He explained that the company’s serious efforts to boost credit measures and restructure its businesses have led to the change in the outlook.

Read why analyst may see a swing in the momentum for AA.

Serious about business

Agee added that the company is increasingly shifting its emphasis to higher margin products among its engineered products and solutions segment. The steps come in addition to the closure of high-cost plants and investments on improvement of the company’s upstream businesses. The rating agency expects that Alcoa Inc (NYSE:AA) is capable of keeping a strong liquidity position and will improve its balance sheet as well as reorganize its cost structure. Agee supported his outlook on the company stating that Alcoa’s deal with RTI International Metals echoes that the company is deadly serious about rejigging its portfolio.

Smelting is no longer lucrative

The changed outlook on Alcoa Inc (NYSE:AA) came after it announced acquisition of RTI International Metals, Inc. (NYSE:RTI) in stock for stock transaction valued at $1.5 billion. Under the agreement, shareholders of RTI will receive 2.8315 shares of Alcoa for every RTI share held by them. The share deal denote a value of $41 per RTI share. The transaction largely represents Alco’s intention to shift its focus on manufactured products for the automotive and aerospace industries. The objective is evident from the company’s similar acquisition last year, when it bought Firth Rixson Ltd. and Tital.

Alcoa has agreed that such acquisitions hold much more value than mining raw materials and smelting aluminum in smelters, which contribute larger revenues to the company. However, the business segment is hurt by Chinese exports and dull growth in a number of countries. Thus, the company is in the process of transforming as it announced to cut down nearly 14% of its smelting capacity. The shares of Alcoa Inc (NYSE:AA) closed 5.39% down at $13.70 during the previous day.

David Barry

David Barry

Barry is a senior journalist at Us Markets Daily. He reports, shoots and edits many of his own stories by himself.