Can Alcoa Be the Stock It Once Was?

With shares of Alcoa (NYSE:AA) trading around $14, is AA an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Alcoa is engaged in the production and management of aluminum, fabricated aluminum, and alumina combined through its participation in technology, mining, refining, smelting, fabricating, and recycling. Alcoa’s products are used worldwide in aircraft, automobiles, commercial transportation, packaging, building and construction, oil and gas, defense, consumer electronics, and industrial applications. The company’s operations consist of four worldwide segments: Alumina, Primary Metals, Flat-Rolled Products, and Engineered Products and Solutions.

Aluminum maker Alcoa, already a leading supplier to aerospace companies, hopes to see sales in that sector soar with its deal to buy UK jet engine components maker Firth Rixson for $2.85 billion. The acquisition also drives Alcoa’s strategy of focusing on key growth markets such as autos and aerospace. “The acquisition of Firth Rixson is a major milestone in Alcoa’s transformation,” Alcoa CEO Klaus Kleinfield said in a statement. Alcoa bought Rixson, which makes rings, forgings and other metal products used in jets, from private equity firm Oak Hill Capital Partners. Alcoa will pay $2.35 billion cash, plus $500 million of stock and an additional $150 million potential earn-out.

The aluminum maker projects a compound annual commercial jet growth rate of 7 percent through 2019 and sees a current nine-year production order backlog at 2013 delivery rates. Aerospace giants Boeing (NYSE:BA) and Airbus are ramping up production as carriers revamp their fleets with more fuel-efficient aircraft. Alcoa said it expects to see cost savings top $100 million per year in five years. The companies project the deal will close by the end of this year. After trading in a narrow range in the back half of 2013, Alcoa’s stock took off in mid-December, and it’s advanced 59 percent since then to the highest point in nearly three years. The stock has been helped by expectations the auto industry will use more aluminum. Ford Motor (NYSE:F) announced earlier this year plans to roll out a lighter, more fuel-efficient aluminum body version of its F-150 pickup. Industry watchers say other automakers may follow suit. Ford said this week the aluminum body F-150 is on track for a rollout by year-end.