Aluminum is a crucial metal in contemporary society, and its importance is magnified as sustainability takes the spotlight. With wide-ranging applications across various sectors, ample room exists for a foreseeable expansion in the aluminum industry.
Upon careful analysis, fundamentally strong aluminum stock Constellium SE (CSTM) appears to be a solid buy candidate. On the other hand, I believe Kaiser Aluminum Corporation (KALU) should be kept on one's watchlist, while fundamentally weak aluminum stock Century Aluminum Company (CENX) should be best avoided for now.
But before we delve into the fundamentals of the stocks listed above, let’s understand the aluminum industry's potential.
Aluminum, a lightweight metal with high thermal conductivity, is also corrosion-resistant and easily recyclable. Its utility stretches across diverse industries like construction, automobile, aerospace, packaging, and electronics, to name a few. After oxygen and silicon, it is the third most abundant element in the Earth’s crust.
Over half of global aluminum consumption is attributed to the construction and transportation sectors. Aluminum is vital in several technologies critical to the clean energy transition. The clean energy transition is bound to escalate the demand for aluminum, as numerous technologies potentially require an increased utilization of this element. For instance, aluminum is integral to different mechanisms found in lightweight vehicles and solar energy systems.
The year 2023 has seen numerous industrial metal markets – aluminum included – enveloped in a prolonged phase of anticipation and uncertainty. Amid a cautious market environment due to ongoing global economic challenges, the aerospace manufacturing sector, poised to surge, could stimulate the demand for aluminum.
Roughly a quarter of the total global aluminum production is dedicated to the transportation sector, wherein aerospace manufacturers represent a large proportion of that allocation. This underscores the importance and broad-based industrial reliance on this versatile metal.
Furthermore, the global aluminum market is projected to reach $255 billion by 2030, growing a 6.1% CAGR.
Considering these conducive trends, let's take a look at the fundamentals of the three Aluminum stocks, starting with number 3.
Stock #3: Century Aluminum Company (CENX)
CENX produces standard-grade and value-added primary aluminum products in the United States and Iceland. It operates aluminum reduction facilities or smelters.
CENX’s trailing-12-month CAPEX/Sales of 3.58% is 50.8% lower than the industry average of 7.28%. Its trailing-12-month gross profit and EBITDA margins of 1.50% and 1.97% are 94.7% and 88.6% lower than the industry averages of 28.43% and 17.30%, respectively.
Over the past three and five years, its tangible book value declined at CAGRs of 17.4% and 16.7% CAGRs, respectively, while EBITDA declined at a CAGR of 19.7% over the past five years.
In the fiscal third quarter that ended September 30, 2023, CENX’s total net sales stood at $545.20 million, down 14.4% year-over-year, while its operating loss stood at $24.20 million.
For the same quarter, the adjusted net loss attributable to CENX stockholders came at $13.80 million, while its adjusted loss per share stood at $0.13. Moreover, as of September 30, 2023, its total current liabilities stood at $634 million, compared to $410.70 million as of December 31, 2022.
Street expects CENX’s EPS in the fiscal year ending December 2023 to be negative $0.29, while revenue is expected to decline 23.2% year-over-year to $2.13 billion.
The stock declined 19% year-to-date to close the last trading session at $6.63. Over the past three months, it lost 26.3%.
CENX’s bleak fundamentals are reflected in its POWR Ratings. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has an F grade for Sentiment and a D for Growth, Stability, and Quality. Within the 7-stock Aluminum industry, it is ranked last.
To see additional POWR Ratings for Value and Momentum for CENX, click here.
Stock #2: Kaiser Aluminum Corporation (KALU)
KALU manufactures and sells semi-fabricated specialty aluminum mill products in the United States and internationally. The company offers rolled, extruded, and drawn aluminum products for aerospace and defense, aluminum beverage and food packaging, automotive, and general engineering products.
On October 12, KALU’s Board of Directors declared a quarterly dividend of $0.77 per share, payable to stockholders on November 15. The company has paid dividends for 16 consecutive years.
Its annualized dividend rate of $3.08 per share translates to a dividend yield of 5.48% on the current share price. Its four-year average yield is 3.40%. KALU’s dividend payments have grown at CAGRs of 4.8% and 7% over the past three and five years, respectively.
Over the past three and five years, its revenue grew at CAGRs of 35.3% and 15.2%, respectively, while its total assets grew at 7.1% and 9.7% CAGRs over the same periods.
In the fiscal third quarter that ended September 30, 2023, KALU’s net sales stood at $743.60 million, while its non-GAAP operating income increased 603.4% year-over-year to $20.40 million.
For the same quarter, its adjusted net income came at $7.40 million, compared to an adjusted net loss of $3.40 million in the prior year quarter. Its adjusted earnings per share came in at $0.46, compared to an adjusted loss per share of $0.21 in the year-ago quarter. Moreover, its adjusted EBITDA increased 65.9% year-over-year to $47.60 million.
Street expects KALU’s EPS in the fiscal year ending December 2023 to be $2.02, while its revenue is expected to decline 10.5% year-over-year to $3.07 billion.
The stock declined 1.7% intraday to close the last trading session at $56.23.
KALU’s fundamentals are reflected in its POWR Ratings. It has an A grade for Growth. Within the same industry, it is ranked #4.
Beyond what we’ve stated above, we have also rated the stock for Value, Momentum, Stability, Sentiment, and Quality. Get all ratings of KALU here.
Stock #1: Constellium SE (CSTM)
Headquartered in Paris, France, CSTM designs, manufactures, and sells specialty rolled and extruded aluminum products for the packaging, aerospace, automotive, other transportation and industrial end-markets. It operates through three segments: Packaging & Automotive Rolled Products; Aerospace & Transportation; and Automotive Structures & Industry.
CSTM’s trailing-12-month asset turnover ratio of 1.46x is 106.7% higher than the industry average of 0.71x. Its trailing-12-month ROCE and ROTC of 17.24% and 5.64% are 120.8% and 1.3% higher than the industry averages of 7.81% and 5.57%, respectively.
Over the past three and five years, its revenue grew at CAGRs of 14.2% and 6.2%, respectively, while its total assets grew at 3.7% and 4.1% CAGRs over the same periods.
In the fiscal third quarter that ended September 30, 2023, CSTM’s revenue stood at €1.72 billion ($1.84 billion), while its gross profit increased 18.8% year-over-year to €158 million ($169 million). Its income from operations stood at €118 million ($126.21 million), up 293.3% year-over-year.
For the same quarter, net income attributable to equity holders of CSTM and earnings per share attributable to the equity holders of CSTM stood at €64 million ($68.45 million) and €0.43, respectively. Moreover, its free cash flow increased 5.4% year-over-year to €78 million ($83.42 million).
Street expects CSTM’s EPS in the fiscal fourth quarter ending December 2023 to increase 14.3% year-over-year to $0.26, while its revenue is expected to be $1.63 billion.
The stock has gained 44.7% year-to-date to close the last trading session at $17.12. Over the past year, it gained 54.7%.
CSTM’s robust prospects are reflected in its POWR Ratings. The stock has an overall B rating, equating to Buy in our proprietary rating system.
CSTM has a B grade for Value. It is ranked #3 within the same industry.
Click here for the additional POWR Ratings for CSTM (Growth, Momentum, Stability, Sentiment, and Quality).
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
CSTM shares were unchanged in premarket trading Friday. Year-to-date, CSTM has gained 44.72%, versus a 14.70% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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