Why Wall Street Owes Alcoa an Apology
NEW YORK (TheStreet) -- It always amuses me to watch Wall Street analysts back-peddle from bearish comments made about companies that never really deserved to be doubted in the first place. Warren Buffett once said that when a management team with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact. This has always been an axiom to which I've subscribed and one that has proven to be true time and time again.
Except recently (to my amazement) it has proven to not be so and it was indeed the reputation of the management team that trumped the perceived poor status of the business' economics. In disappointing fashion, Wall Street still refuses to give credit where credit is due.
You will be hard pressed to find a management team today that deserves more credit than the group at aluminum giant Alcoa(AA) . Analysts rushed to issue hold recommendations on the stock while also lowering their earnings estimates by almost 50% over the last three months -- from 82 cents per share to 48 cents just ahead of the company's first quarter earnings results.
Leading into the call, consensus forecast was that the company would report a loss of 3 cents per share on revenues of $5.77 billion. The concerns were understandable as most of the bearishness stemmed from (as noted) a global aluminum business that is perceived to be experiencing "bad economics." Except, nobody bothered to explain this to Alcoa's management team.