Philip Gibbs, a Vice President, Equity Research Analyst with KeyBanc Capital Markets, says a name he favors in the metals & mining sector is Kaiser Aluminum Corp. (KALU). He says the company has a similar profile to the carbon EAFs, except that they are aluminum processors.
“So essentially they’d benefit from gradually declining aluminum prices, and they also have some fairly good visibility in aerospace, automotive and industrial,” Gibbs says.
FOR MORE INFORMATION ON THIS INTERVIEW CLICK HERE.
Kaiser Aluminum has put forth some spot price increases in heat-treated aluminum plate, which Gibbs says is the company’s staple product. He says lead times in that product have decreased to 10 weeks, as compared to nearly 20 weeks a year ago, creating good visibility in their order book.
“This is also a company that’s in a very good position to pay down debt beginning in the second quarter, and then they have roughly $600 million in net operating loss carryforwards or NOLs, which allow them to pay a very de minimis amount of cash taxes and really enhances free cash flow,” Gibbs says. “We like the demand visibility and high single-digit free cash flow yield.”
Finally, Gibbs says Kaiser Aluminum has the potential to do a reverse merger, purchasing a larger company in terms of EBITDA generation.
“It would make tremendous sense to us because that would allow them to fully keep their NOLs and really drive a lot of value for shareholders, bringing that cash more aggressively forward here over the next couple of years,” Gibbs says. “So dividend yield support as well strong free cash flow, and that’s really what we are looking for right now during a time period where we see a lot of global deflation.”
Stewart Information Services Corp (STC) Well-Positioned for Refinance Downturn with Mix of Title Revenue
June 11, 2013
Lions Gate Entertainment Corp. (LGF) Well-Positioned as ‘Arms Merchant’ in Battle Between SVOD and Pay TV
October 27, 2015
Cognizant Technology Solutions Corp (CTSH) a Well-Positioned, Favorably Priced Stock
January 25, 2016
Agnico Eagle Mines Ltd (USA) (AEM) Well-Positioned to Produce 1.6 Million Ounces in 2015
December 23, 2014
Keurig Green Mountain Inc (GMCR) Lays Bear Case to Rest with Extended Starbucks Partnership and New Coca-Cola Deal
July 18, 2014
