Alcoa (AA) is scheduled to report their second quarter 2009 results after the market closes on Wednesday, July 8. Based on our analysis, we at EarningsPreviews.com are expecting AA to report better than expected results that exceed Wall Street’s consensus expectations.

 Analyst Expectations

We are forecasting revenues of $3.92 billion and EPS of ($.29). This would represent a 49% decline in revenues from last year’s $7.62 billion in the same period. The current analyst consensus estimates calls for revenues of $3.94 billion and EPS of ($.34).

Alcoa, as the world’s largest aluminum producer, tends to move inline with aluminum prices. While aluminum prices remain down approximately 50% from year-ago levels, prices have been increasing from off the lows we saw in the first quarter. In fact, aluminum prices averaged 7-8% higher in the second quarter than they did in the first quarter.

While stabilizing aluminum prices are clearly a positive for Alcoa, the headline numbers are still going to be negative. However, after disappointing Wall Street the last three quarters, we are now expecting Alcoa to post a second quarter loss that will be slightly better than the current consensus estimates.

Share Performance

Since the beginning of the year, Alcoa’s shares are down over 8%. In 2008, AA’s shares fell 69% and badly underperformed the 34% decline in the Dow Jones industrial average.

Valuation

Shares are now trading at 34x consensus fiscal 2010 EPS estimates. This is above the relative valuations of their peer group. Alcoa’s shares have doubled since hitting a new 52-week low in March. With green shoots of an economic recovery beginning to appear and with aluminum prices rising again, our investment thesis for Alcoa is becoming more positive.

Recommendation: Buy with a $12 price target.