I don’t want to place too much emphasis on the Alcoa earnings, but their report highlights some of the potential risks that have been baked into equity prices. Alcoa reported a solid quarter by almost any measure. Sales were up 17.8% year over year and Klaus Kleinfeld, Alcoa President and Chief Executive Officer says the environment is in fact improving:
“Our markets are gradually improving and both policy trends and consumer sentiment bode well for aluminum demand.”
Despite the clear improvement, equity investors are now pricing in a nearly flawless quarter for Q1 earnings. Alcoa’s bottom line of 10 cents EPS was in-line with expectations and the revenue line was shy of the $5.24B estimates. Alcoa’s EPS are notoriously lumpy, but this was the first time in 11 quarters that they have missed revenue estimates. Analysts are clearly pricing in robust revenue growth. “In-line” and revenue misses simply won’t cut it after a 16% rally in equities. Alcoa is by no means a fair measure of the entire market, but it does highlight some of the potential risks that have been baked into equities.