Valuation Scorecard: Stock Rating D-Negative (2/26/24)-Kaiser Aluminum Corp (KALU).

What is the market’s view of Kaiser Aluminum’s future operating performance as reflected in the current price of $66? Kaiser Aluminum’s common shares will need to reach $111 to achieve average annual stock market performance of 9.0% over the next 6 years. Upper quartile performance will require a $130 Kaiser Aluminum stock price by 2028.

Executive Summary

• Key Kaiser Aluminum characteristics: below average expected growth, low stability, very low profitability, and low financial strength. A big negative influence on Kaiser Aluminum’s valuation is its poor Risk Profile.
• Very low valuation, lagging shareholder returns. Current valuation levels are very low relative to the Kaiser Aluminum Peer Group. Recent market returns have substantially underperformed the Kaiser Aluminum Peer Group. Total shareholder returns expected to significantly beat the overall equity market. Based on current investor expectations, Kaiser Aluminum shares should reach a level of $113 by 2028 — an 13.8% per year total shareholder return. A 2028 stock price of $111 would reflect median performance and a price of $130 would be required to reach upper quartile performance.
• Kaiser Aluminum’s achieved growth is average. Historical growth has been average relative to the Kaiser Aluminum Peer Group and forecasted growth is relatively average. Revenue Growth, and Asset Growth have been superior. Equity Growth, and EPS Growth have lagged. Kaiser Aluminum’s historical income statement growth and balance sheet growth have diverged. Revenue growth has exceeded asset growth; earnings growth has fallen short of equity growth driving erosion in return on equity.
• Asset Turnover is group leading. Pretax Margin, Pretax ROA, and Return on Equity are group lagging. The company has very low cash and will have to work to generate attractive investments and improve valuation.
• Risk Profile has been Kaiser Aluminum’s biggest valuation weakness. Kaiser Aluminum’s risk profile is very unfavorable. Overall variability has been very high with very high revenue variability, very high E.P.S. variability, and above average stock price volatility. Financial Strength is very low and earnings’ expectations are very low. The debt/capital ratio has been relatively steady.

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