BUSINESS
Kaiser Aluminum Corporation engages in manufacture and sale of semi-fabricated specialty aluminum mill products in the United States and internationally. The company offers rolled, extruded, and drawn aluminum products used for aerospace and defense, aluminum beverage and food packaging, automotive and general engineering products. The company’s automotive extrusions include extruded aluminum products for structural components, crash management systems, anti-lock braking systems, and drawn tubes for drive shafts, as well as offers fabrication services, including sawing and cutting to length.
INVESTMENT RATING
KALU’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to be a Value Builder.
Kaiser Aluminum has a current Value Trend Rating of D (Negative).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing consistent signals. Kaiser Aluminum has a neutral Appreciation Score of 52 and a slightly negative Power Rating of 34, with the Negative Value Trend Rating the result.
Kaiser Aluminum’s stock is selling well below targeted value. The current stock price of $66.08 compares to targeted value 12 months forward of $97.
This neutral appreciation potential results in an appreciation score of 52 (48% of the universe has greater appreciation potential.)
Kaiser Aluminum has a Power Rating of 34. (This slightly negative Power Rating indicates that KALU’s chances of enjoying favorable investment performance over the near to intermediate term are only average.)
Factors contributing to this slightly negative Power Rating include: KALU’s earnings estimates have fallen very significantly in recent months; and recent price action has been slightly unfavorable. An offsetting factor is the Rolling & Drawing Nonferrous Metal comparison group is in a strong phase currently.
INVESTMENT PROFILE
KALU’s financial strength is below average. Financial strength rating is 38.
Relative to the S&P 500 Composite, Kaiser Aluminum Corp has significant Value characteristics; its appeal is likely to be to investors heavily oriented toward Income; the perception is that KALU is higher risk. All factors are relative weaknesses. Relative weaknesses for KALU include: low forecasted profitability, low historical profitability, low financial strength, high stock price volatility, high financial leverage, low expected growth, low historical growth, and high earnings variability. KALU’s valuation is low: high dividend yield, moderate P/E ratio, and low price/book ratio. KALU has unusually low market capitalization.
CURRENT SIGNALS
Kaiser Aluminum’s current operations are eroding. Return on equity is falling, reflecting: declining pretax margin; and falling leverage.
Kaiser Aluminum’s current technical position is very strong. The stock price is in a 2.1 month up move. The stock has appreciated 31.1% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
Kaiser Aluminum Corp (NASDAQ: KALU). Marginal negative changes in fundamentals have recently occurred: significant quarterly earnings deceleration occurred.
In light of this new information we are reviewing our current Overall Rating of D. This review will be completed in the next several days.
Kaiser Aluminum Corp (NASDAQ: KALU) has reported earnings for its fourth fiscal quarter (ending December 31) of $0.47 versus a loss $-1.66 for the same period a year ago. For the latest four quarters through December 31, E.P.S. were $2.95 compared to $-1.86 a year ago.
Kaiser Aluminum Corp (NASDAQ: KALU) stock closed at $66.08 on 2/21/24 after a modest gain of 0.5%. NORMAL trading volume accompanied the advance. The stock has risen 0.9% during the last week but has been weak relative to the market over the last nine months.
CASH FLOW
In 2022, Kaiser Aluminum experienced a very significant reduction in cash of -$245.8 million (-81%). Sources of cash were much lower than uses. Cash generated from 2022 EBITDA totaled +$137.2 million. Non-operating uses consumed -$16.3 million (-12% of EBITDA). Cash taxes contributed +$2.7 million (+2% of EBITDA). Re-investment in the business amounted to -$281.2 million (-205% of EBITDA). On a net basis, debt investors received -$56.5 million (-41% of EBITDA) while equity investors pulled out -$31.7 million (-23% of EBITDA).
Kaiser Aluminum’s Non-operating Income, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Kaiser Aluminum Peer Group. In most years, Kaiser Aluminum was in the top quartile and third quartile. Currently, Kaiser Aluminum is substantially below median at -12% of EBITDA (-$16.3 million).
Kaiser Aluminum’s Cash Taxes, %EBITDA has exhibited little to no overall change over the period. This stability was accompanied by an uptrend for the Kaiser Aluminum Peer Group. (Since 2017 Cash Taxes, %EBITDA has experienced very sharp improvement.) In most years, Kaiser Aluminum was in the top quartile and second quartile. Currently, Kaiser Aluminum is upper quartile at +2% of EBITDA (+$2.7 million).
Kaiser Aluminum’s Business Re-investment, %EBITDA has suffered a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Kaiser Aluminum Peer Group. In most years, Kaiser Aluminum was in the second quartile and top quartile. Currently, Kaiser Aluminum is lower quartile at -205% of EBITDA (-$281.2 million).
Kaiser Aluminum’s Debt Investors, %EBITDA has experienced a volatile overall uptrend over the period. This improvement was accompanied by stability for the Kaiser Aluminum Peer Group. (Since 2020 Debt Investors, %EBITDA has experienced a very sharp decline.) In most years, Kaiser Aluminum was in the top quartile and third quartile. Currently, Kaiser Aluminum is substantially below median at -41% of EBITDA (-$56.5 million).
Kaiser Aluminum’s Equity Investors, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Kaiser Aluminum Peer Group. In most years, Kaiser Aluminum was in the third quartile and lower quartile. Currently, Kaiser Aluminum is substantially below median at -23% of EBITDA (-$31.7 million).
Kaiser Aluminum’s Change in Cash, %EBITDA has experienced a volatile overall downtrend over the period. This downtrend was accompanied by stability for the Kaiser Aluminum Peer Group. In most years, Kaiser Aluminum was in the lower quartile and top quartile. Currently, Kaiser Aluminum is lower quartile at -179% of EBITDA (-$245.8 million).
Kaiser Aluminum’s Cash, %Revenue has exhibited little to no overall change over the period. This stability was accompanied by stability for the Kaiser Aluminum Peer Group as well. (Since 2020 Cash, %Revenue has experienced a very sharp decline.) In most years, Kaiser Aluminum was in the top quartile and third quartile. Currently, Kaiser Aluminum is lower quartile at +2%.
PROFITABILITY
Kaiser Aluminum’s return on equity has eroded very significantly since 2013. The current level is 2.1% versus the high of 9.7% and the low of -30.6%.
This very significant erosion was due to very strong negative trend in pretax operating return offset by very strong positive trend in non-operating factors.
The productivity of Kaiser Aluminum’s assets rose over the full period 2013-2023: asset turnover has enjoyed a very strong overall uptrend that accelerated very sharply after the 2020 level.
Kaiser Aluminum’s pretax margin experienced a volatile overall downtrend over the period 2013-2023.
Non-operating factors (income taxes and financial leverage) had a very significant positive influence on return on equity.
Kaiser Aluminum’s return on equity is lower quartile (2.1%) for the four quarters ended September, 2023.
Operating performance (pretax return on assets) is lower quartile (0.6%) reflecting asset turnover that is upper quartile (1.38X) and lower quartile pretax margin (0.4%).
Tax “keep” rate (income tax management) is upper quartile (104.8%) resulting in after tax return on assets that is lower quartile.
Financial leverage (leverage) is upper quartile (3.54X).
GROWTH RATES
There are no significant differences between Kaiser Aluminum’s longer term growth and growth in recent years.
Kaiser Aluminum’s historical income statement growth and balance sheet growth have diverged. Revenue growth has paralleled asset growth; earnings growth has fallen short of equity growth.
Annual revenue growth has been 11.1% per year. (More recently it has been 37.8%.)
Total asset growth has been 6.2% per year. (More recently it has been 10.7%.)
Annual E.P.S. growth has been -9.4% per year.
Equity growth has been -3.0% per year.
No consensus growth rate forecast is available for Kaiser Aluminum.
Relative to the Kaiser Aluminum Peer Group, Kaiser Aluminum’s historical growth measures are erratic. Revenue growth (11.1%) has been at the upper quartile. Total asset growth (6.2%) has been slightly above median. E.P.S. growth (-9.4%) has been lower quartile. Equity growth (-3.0%) has been lower quartile.
Consensus growth forecast is unavailable.
PRICE HISTORY
Over the full time period, Kaiser Aluminum’s stock price performance has been variable and significantly below market. Between April, 2013 and February, 2024, Kaiser Aluminum’s stock price rose +5%; relative to the market, this was a -66% loss. Significant price moves during the period: 1) May, 2021 – September, 2022: -53%; 2) September, 2020 – May, 2021: +141%; and 3) December, 2019 – September, 2020: -52%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of -22.3% is lower quartile relative to the S&P 500 Composite.
In addition to being lower quartile relative to S&P 500 Composite, current annual total return performance through January, 2024 of -22.3% is lower quartile relative to Kaiser Aluminum Corp Peer Group.
Current 5-year total return performance of -5.1% is lower quartile relative to the S&P 500 Composite.
Through January, 2024, with lower quartile current 5-year total return of -5.1% relative to S&P 500 Composite, Kaiser Aluminum’s total return performance is lower quartile relative to Kaiser Aluminum Corp Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, KALU’s overall valuation is normal. The highest factor, the price/earnings ratio, is upper quartile. Ratio of enterprise value/earnings before interest and taxes is upper quartile. Ratio of enterprise value/assets is at the lower quartile. Price/equity ratio is lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
Relative to Kaiser Aluminum Peer Group, KALU’s overall valuation is normal. The highest factor, the price/earnings ratio, is upper quartile. Ratio of enterprise value/earnings before interest and taxes is upper quartile. Ratio of enterprise value/assets is lower quartile. Price/equity ratio is lower quartile. The lowest factor, the ratio of enterprise value/revenue, is lower quartile.
Kaiser Aluminum has a major value gap compared to the median. For KALU to hit median valuation, its current ratio of enterprise value/revenue would have to rise from the current level of 0.68X to 1.51X. If KALU’s ratio of enterprise value/revenue were to rise to 1.51X, its stock price would be higher by $162 to $228.
For KALU to achieve upper quartile valuation relative to the Kaiser Aluminum Peer Group, its current ratio of enterprise value/revenue would have to rise from the current level of 0.68X to 2.44X. If KALU’s ratio of enterprise value/revenue were to rise to 2.44X, its stock price would increase by $345 from the current level of $66.
VALUE TARGETS
KALU’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to be a Value Builder.
Kaiser Aluminum’s current Price Target of $92 represents a +40% change from the current price of $66.08.
This neutral appreciation potential results in an appreciation score of 52 (48% of the universe has greater appreciation potential.)
Reinforcing this neutral Appreciation Score of 52, the moderately low Power Rating of 34 contributes to an Value Trend Rating of D.
Kaiser Aluminum’s current Price Target is $92 (+67% from the 2022 Target of $55 and +40% from the 02/21/24 price of $66.08). This dramatic rise in the Target is the result of a +10% increase in the equity base and a +52% increase in the price/equity multiple. The forecasted increase in cost of equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a slight negative impact as well. More than offsetting these Drivers, the forecasted increase in return on equity has a huge positive impact.
PTR’s return on equity forecast is 9.4% — slightly above our recent forecasts. Forecasted return on equity suffered a dramatic, erratic decline between 2014 and 2022. The current forecast is below the 2019 peak of 14%.
PTR’s growth forecast is 7.0% — above our recent forecasts. Forecasted growth enjoyed a dramatic, erratic increase between 2014 and 2022. The current forecast is well above the 2018 low of 0%.
PTR’s cost of equity forecast is 6.4% — slightly above recent levels. Forecasted cost of equity exhibited a slight, erratic increase between 2014 and 2022. The current forecast is below the 2019 peak of 9.0%.
At Kaiser Aluminum’s current price of $66.08, investors are placing a negative value of $-2 on its future investments. This view is not supported by the company’s most recent performance that reflected a growth rate of 12.0% per year, and a return on equity of 4.7% versus a cost of equity of 4.3%.
PTR’s 2024 Price Target of $92 is based on these forecasts and reflects an estimated value of existing assets of $84 and a value of future investments of $8.
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