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Stock Strategist

Alcoa Split Doesn't Change Our Valuation

But the upstream business holds promise for contrarians with a long-term focus.


After weighing the financial implications of  Alcoa's (AA) tax-free spin-off, we've opted to maintain our fair value estimate of $17 per share. We highlight three key points regarding the split.

First, based on the announcement of the split alone, we see no justification to change our long-term profit forecasts for Alcoa. During the related conference call, CEO Klaus Kleinfeld alluded to potential dissynergies that are likely to arise. In aggregate, the two new entities' operations are likely to be supported by a modestly higher degree of selling, general, and administrative expenses relative to current spending, but not enough to inspire a fair value change.

Andrew Lane does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.