Even though the company lost a lot of its relevance as a bell weather years ago and was even booted from the DJIA way back in 2013, we always considered the release of Alcoa’s (AA) earnings report to mark the unofficial start of earnings season. Late last year, though, Alcoa split up into two separately traded companies, and neither of the two remaining companies releases its report until late January, so the company’s distinction as kicking off earnings season is no longer applicable. Tonight, after the close, AA, which consists of the former company’s legacy raw aluminum operations, reports earnings, while Arconic (ARNC), which represents the company’s higher-growth business of manufactured goods for the aerospace and automotive industries, reports a week from today on 1/31.
With both companies now trading on their own for close to three months, we wanted to take a look at how they have performed as their own independent entities. For a little background, when the split was first announced in late 2015, the purpose was meant as a way to free Arconic from the shadows of the old line slow growth Aluminum company. The thinking was that this would help the market to fully recognize the value of this high growth business and for just about everyone involved, Arconic was the company with better prospects going forward. The fact that CEO Klaus Kleinfeld said he would take over as the CEO of Arconic showed which business he thought had the best potential, and he was quoted as saying, “You have to look at where you can create more value.”
So while everyone seemed to get all excited for the prospects of Arconic and left Alcoa for dead, which stock do you think has done better on its own? The chart below shows the performance of both stocks since they started trading on a separate basis. In the nearly three months that Arconic has been on its own, the stock has rallied a pretty impressive 14%, or nearly twice the gain of the S&P 500. That’s all well and good, but over that same time period, poor old Alcoa has rallied more than 60%! For any stock, that’s a major move in three months, but for a stock that did essentially nothing for several years and sat out the bull market, it’s monstrous, and it all came from the legacy slow-growth business that Arconic and executives at the combined company were trying to get away from. It’s still early, but as of now Alcoa’s performance still casts quite a shadow over Arconic!