Alcoa Corp. shares headed for the biggest gain in more than a year after the company reported third-quarter earnings that were double estimates and announcing a share buyback.
Shares in the top U.S. aluminum producer surged 7.4%. The manufacturer said after the close of trading on Wednesday that it would repurchase $200 million of its stock. The buyback is the first since 2007, when Alcoa was still a combined commodity and metal-parts maker.
Alcoa is benefiting from higher prices of alumina, a key ingredient used in aluminum and one that Alcoa makes and sells. The earnings beat signals that the Pittsburgh-based company is weathering the trade war that had caused it to trim its 2018 profit forecast in July.
“Alcoa joins the capital returns party,” Chris LaFemina, an analyst with Jefferies LLC who rates the stock a buy, said in a note. “We believe the market will respond positively to this buyback along with the better-than-expected 3Q results.”
Alcoa rose to $39.41 at 10:16 a.m. in New York. A close at that price would mark the biggest gain since April 25, 2017.
The company earned 63 cents a share after adjusting for one-time items, topping the 30-cent average of analysts’ estimates compiled by Bloomberg. Alcoa split from its auto- and jet-components business in late 2016.
The buyback comes even as Alcoa trimmed its demand forecast for the global aluminum market, a reduction the company said was driven by China. LaFemina said that the commodity fundamentals for Alcoa are "not great.”
“While we applaud the share buyback and give the company credit for the improvements in its capital structure, we do not expect Alcoa to benefit from higher prices for its commodities,” LaFemina said in the note.
Aluminum prices in London have fallen about 26% from an almost seven-year high reached in April in the wake of U.S. sanctions on Russian producer United Co. Rusal and amid rising global trade frictions.
“We continue to see that the world is a pretty uncertain place,” Chief Executive Officer Roy Harvey said in an interview following the earnings release.
