Why Alcoa Stock Popped on Friday

Traditionally one of the first big companies to report results in any earnings season, Alcoa (NYSE:AA) stock started off the Q3 rush with some great news last night: Alcoa beat earnings.

Heading into the report, analysts had Alcoa pegged for a $1.54 per share profit, but the aluminum giant actually earned $1.82 per share (adjusted for one-time items). Granted, sales fell a bit short -- $3.7 billion versus analysts' hoped-for $3.8 billion.

But at least the earnings were good.

Alcoa Q3 earnings

Really good. Alcoa grew its sales 23.7%, which is an impressive number even if it did "miss estimates." But Alcoa's earnings were even better. Profits flipped from negative to positive on an adjusted basis, and earnings calculated under generally accepted accounting principles (GAAP) more than doubled to $1.81 per share (just a penny less than the "adjusted" number).

Furthermore, Alcoa generated a respectable $472 million in free cash flow for the quarter, backing up 97.7% of reported net income with real cash profit.

Profit margins increased nicely, growing from 7.7% to 13%, and CEO William F. Oplinger says that, thanks to improved refinery performance plus contributions from acquisitions, Alcoa increased its production of aluminum in the quarter as well.

What's next for Alcoa

So, more aluminum produced and sold at higher margins? Sounds pretty good to me. And Alcoa is doing its best to keep the good times rolling.

Turning to guidance, management reaffirmed its target of shipping 2.6 to 2.8 million metric tons of aluminum and 11.5 to 11.6 million metric tons of alumina (aluminum oxide) this year. Input costs may be a bit higher, weighing on profitability.

Most analysts still agree Alcoa should end 2026 with $6.81 per share in profit, however, valuing the stock at a cheap 6.3x current-year earnings.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.