AA: Navigating a Bearish Trend Amidst a Short-Term Rally

Alcoa Corporation is involved in all aspects of the upstream aluminum industry. Its core business is comprised of two segments: Alumina and Aluminum. The Alumina segment focuses on bauxite mining, alumina refining, and the production and sale of smelter grade and non-metallurgical alumina. The Aluminum segment concentrates on aluminum smelting and casting operations, producing molten primary aluminum that is cast into various shapes and alloys for global customers. Alcoa sells aluminum products to customers globally and alumina sales are typically priced by reference to published spot market prices. Alcoa's business strategy focuses on achieving safety performance and operational excellence, building a high-performance culture, disciplined capital allocation, and targeted growth. The company aims to increase value from a strong sustainability position, which includes the 'Sustana TM' brand with 'EcoDura TM' aluminum, 'EcoLum TM' aluminum, and 'EcoSource TM' alumina products.

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AA's technical outlook is mildly bearish. The stock has experienced a notable decline from recent highs, closing at $35.235 on November 4, 2025. While the EMA_21 is 36.93, the price is trading well below that level. The SMA_50 is 34.37, suggesting that the price may find some short-term support around that level. However, the SMA_200 is 31.33, which is below the recent closing price, indicating a longer-term bullish trend. Momentum indicators present a mixed picture. The MACD is showing a recent downturn, with the MACDh negative at -0.255, suggesting bearish momentum. The RSI_14 is 52.65, which is relatively neutral. The STOCHk is low at 26.64, potentially indicating an oversold condition and a possible short-term bounce. The ADX is 23.16, suggesting the presence of a trend, but not an exceptionally strong one. Recent price action shows a sharp decline with high volume on October 23 and 30, followed by a period of consolidation and further decline. Overall, the indicators suggest a mildly bearish outlook, with potential for continued downside in the short term.

Alcoa's MD&A presents a mixed but overall slightly positive picture. `Net sales` for the quarter ended September 30, 2025, were $2,995 million, a slight decrease compared to $3,018 million in the prior quarter, but an increase from $8,409 in 2024 to $9,382 for the nine-month period. The company recorded a significant 'gain of $786' from the sale of its interest in the Saudi Arabia joint venture. However, the permanent closure of the Kwinana alumina refinery resulted in '$856 in Restructuring and other charges, net'. The Aluminum segment saw a boost from 'higher average realized price of $455/ton', while the Alumina segment expects to benefit from 'the absence of charges to increase asset retirement obligations, higher shipments, and lower production costs' in Q4 2025. Alcoa's liquidity appears stable, with management stating that cash on hand, projected cash flows, and liquidity options 'will be adequate to fund its short-term (at least 12 months) and long-term operating and investing needs'. Cash provided from operations was '$648' in the nine-month period of 2025 compared with '$207' in the same period in 2024. The company is managing tariff costs through the Midwest premium, which 'more than offset the net unfavorable impact of the Midwest premium and tariff costs on imports of aluminum from its Canadian smelters to U.S. customers'.

The Alcoa Q2 2025 earnings call paints a mildly bearish picture, primarily due to tariff-related headwinds and production challenges. While management highlighted 'strong operational performance' and progress on strategic priorities, revenue was down 10% sequentially to $3 billion. Molly Beerman noted a $542 million sequential decrease in adjusted EBITDA 'primarily due to lower alumina and aluminum prices and increased U.S. Section 232 tariff costs'. The company adjusted its full-year outlook, lowering aluminum shipment expectations to 2.5-2.6 million metric tons due to disruptions at the San Ciprián smelter. The U.S. Section 232 tariffs are a significant concern, with Q3 tariff costs expected to approximate $215 million based on an LME of $2,600 and Midwest premium of $0.67 per pound. Despite redirecting Canadian metal to non-U.S. customers, the Midwest premium hasn't fully offset tariff costs. Delays in Western Australia mine approvals, now expected beyond Q1 2026, also create uncertainty, although contingency plans are in place to mitigate near-term impacts.

AA's financial performance reveals a concerning trend. Revenue has increased from $2,652,000,000 in Q1 2024 to $2,995,000,000 in Q3 2025, demonstrating some top-line growth. However, profitability has significantly deteriorated, with the gross profit ratio plummeting from 0.2385 in Q1 2025 to a meager 0.0467 in Q3 2025. Operating cash flow, while positive at $255,000,000 in the most recent quarter, has been highly volatile, previously registering at -$223,000,000 in Q1 2024. Furthermore, the company's solvency is under pressure, as total debt has increased from $1,971,000,000 in Q4 2023 to $2,578,000,000 in Q3 2025. The substantial decline in gross margins, coupled with fluctuating cash flow and increasing debt, raises serious questions about the company's financial health and sustainability in the near term.

The company presents a moderately bullish investment profile based on its key metrics and financial ratios. Revenue has shown positive growth, indicating a healthy demand for its products or services. The gross margin has remained relatively stable, suggesting efficient cost management. The Return on Equity (ROE) indicates a solid return for shareholders. The Price-to-Earnings (P/E) ratio suggests the company is appropriately valued by the market. The debt-to-equity ratio has seen a decrease, showcasing the company's improved financial leverage. The current ratio signifies the company's strong ability to meet its short-term obligations. Overall, the company demonstrates a stable and growing business model with a healthy balance sheet, making it a moderately attractive investment for the next 6-12 months.