Alcoa’s Solid Earnings Don’t Make Tariff Math Easier for AA Stock

Key Points

• Alcoa stock is dropping despite the company delivering a strong beat in first-quarter earnings and maintaining its full-year guidance.
• The company expects the current tariff policy to cost it $100 million annually.
• Uncertainty around tariff policy leaves AA stock with a range of options that make it more appealing as a trade than an investment.

Alcoa Corp. NYSE: AA delivered a solid earnings report, but the stock is down about 3% the morning after its first quarter earnings report. Revenue of $3.37 billion was lighter than the $3.58 billion that analysts were forecasting. However, earnings per share (EPS) of $2.15 came in 24% higher than analysts’ estimates and over 360% higher than the negative 81 cents per share EPS on a year-over-year basis.

Because Alcoa is directly linked to the current tariff turmoil, analysts and investors wanted to know how the company would handle its future guidance. It’s early into earnings season, but some companies have chosen not to issue forward guidance.

However, Alcoa didn’t just issue guidance; it reaffirmed its existing guidance for both aluminum and alumina. That comes even though Alcoa expects tariffs to result in a $100 million annual cost to the company. That cost is based on the approximately $20 million the company incurred after a 25% tariff on global aluminum imports went into effect in March and the additional $90 million it expects to incur in the coming quarter.

According to Alcoa's chief executive officer (CEO) William Oplinger, this is due, in part, to strong first-quarter demand caused by pull-through. However, Oplinger also noted in an interview with CNBC that the company has a strong order book for the current quarter, which allowed the company to maintain its current guidance. He did, however, remind investors that the company would re-evaluate its guidance at the end of the current quarter.

This Is a Puzzle Without an Easy Solution

The Trump tariff policy's perceived goal is onshore manufacturing in the United States. But Oplinger made it clear that it would be impractical for Alcoa to make moves to increase U.S. manufacturing based solely on tariff policy, which could change.

Today, the United States imports over 4 million metric tons of aluminum, mostly from Canada. As Oplinger stated, the United States would have to build a minimum of five new smelters to close its aluminum trade deficit.

That would take 7-10 years, billions of dollars, and a staggeringly high increase in power, which the company said would be equivalent to that of seven nuclear reactors. Oplinger added that, for now, the most efficient aluminum supply chain is Canadian aluminum flowing into the United States.

That's not likely to be the answer the Trump administration wants to hear, and it’s also why some analysts continue to believe there will be a favorable resolution to the current tariff standoff.

A Range of Options Makes Alcoa Stock a Tough Buy

Like many industrial stocks, Alcoa faces an uncertain short-to-medium-term outlook. The more difficult part for investors to wrestle with is that the solutions aren’t in the company’s control.

The current tariff environment makes it challenging to recommend AA stock as a Buy. That said, there remains a non-zero chance of a favorable shift in tariff policy, which could send Alcoa shares sharply higher.

The options chain for Alcoa for July 2025, which coincides with the end of the 90-day pause, suggests that analysts believe that Alcoa could go as low as $22.50 or as high as $30. Traders can do with that as they will.

Alcoa did take steps to reduce its net debt during the quarter, and those efforts could lead to strong capital returns in the future. In fact, the analyst forecasts on MarketBeat still give Alcoa a Moderate Buy rating with a consensus price target of $45.

But with a dividend that pays out just 40 cents per share on an annual basis, there’s not much incentive for investors to take a long position. That’s not an indictment of Alcoa’s business; it’s just the reality of the company's uncertainty.