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Alcoa: Taxes Are Killing The Value

May 07, 2023 5:08 AM ETAlcoa Corporation (AA)11 Comments
Hong Chew Eu profile picture
Hong Chew Eu


  • There is a 0.8 correlation between Alcoa's gross profitability and aluminum prices.
  • Aluminum prices are cyclical. Any analysis and valuation of Alcoa should be based on this cyclical performance.
  • But because of the high tax rates, there is no margin of safety based on the cyclical after-tax profits. This is despite Alcoa being operationally sound.
Stack of industrial silver ingots at bright light in storage

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Investment Thesis

Alcoa Corporation (NYSE:AA) is a producer of bauxite, alumina, and aluminum. Aluminum prices are cyclical. Alcoa’s earnings would be cyclical given the strong correlation between aluminum prices and Alcoa's gross profitability.

Alcoa could generate significant operating profits under

This article was written by

Hong Chew Eu profile picture
BSc (Eng), MBA. Self-taught value investor with 2 decades of investing experience. Blogger at i4value.asia. The blog is on value investing through case studies where I analyze and value listed companies in the ASEAN and US regions. I have an exceptional perspective having served as a Board member of a Malaysia listed company for several decades. I have value investing book "Do you really want to master value investing?" on Amazon

Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (11)

jesjessie profile picture
interesting article .... you should send Investor Relations an email describing your analysis and ask them for an explanation of why AA tax burden is so high and see how they respond
Hong Chew Eu profile picture
@jesjessie Surely analysts would have picked up this tax thing. But it is a good suggestion.
jesjessie profile picture
@Hong Chew Eu agree , maybe its an just angle that was not considered or maybe u got the math wrong (? , who knows everybody makes mistakes) , if u do reach out and they reply please let us know what they say
Hong Chew Eu profile picture
@jesjessie Good idea. I have just written to Investor Relations. I will share their response when I get it.
Impressive and very illuminating piece. Thanks for publishing.
It is likely they are paying royalties, which is imposed based on revenue, not profit. Looks like this company is still overvalued. I would love to know other aluminum smelters that have lower valuation, especially now EV is booming. Can anyone suggest a good one?
There should be a straightforward explanation about where the taxes are levied. If there is a large extraction tax from the host country then this tax no matter the title should be deducted from revenue before any other calculations. It is a reduction in revenue and has little bearing on valuation and earnings ratios
Green Jacket profile picture
I agree 100%. I would not buy Alcoa above $ 10. If any , I think it is a safe short for the time being
Good article. I had no idea before I read it how high Alcoa's tax rate was. Do you know why they paid taxes even when they made losses? And why some years their tax rate was more than 100%? That makes no sense to me.
Hong Chew Eu profile picture
@Tian Wen I don't enough about Alcoa case. But in my Malaysian experience, there are some restructuring and capital expenditure items that tax authorities don't allow. With operations in different countries, this could be one reason for Alcoa's tax burden.
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