No Respect -- No Respect at All

 | Apr 09, 2013 | 7:15 AM EDT
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Why isn't the stock doing as well as the company? That's pretty much how you feel after watching and listening to Alcoa (AA) CEO Klaus Kleinfeld talk about the company's progress on last night's conference call about its first quarter upside surprise—and it was an upside surprise.

Here's a maker of one of the most versatile materials in the world, aluminum, forecasting a 7% growth rate for its products and saying that there is -- for the first time in ages -- a tightening of supply and demand. This company had previously been a hapless maker of a commodity with some downstream refined product, and it's become an outfit for which 70% of profit comes from proprietary materials developed specifically for the end user. This shift away from high-cost commodity producer, with only 25% of its profits coming from proprietary products, occurred in 10 years' time.

Kleinfeld said there's been no cessation of demand, and that business is still excellent in China. Alcoa is a company taht sells into the red-hot aerospace industry, one that is growing at a 9%-to-10% clip, except for the big birds, which are growing at about 12% and are currently enjoying a backlog of 9400 planes. Alcoa is now a huge amount parts maker for large planes, $3.3 million to $3.8 million, in both the largest Boeing (BA) and Airbus jets.

Aluminum's other big uses -- autos, construction and cans -- are all seeing an uptick at Alcoa. Only trucks are seeing some diminution. The company has $1.6 billion in cash, and is predicting a nice up year with positive free cash flow virtually guaranteed.

Yet what happens when it reports an upside surprise, its best number in two years?

It gets hammered.

Right in front of your eyes. Despite the congratulations on the call. Despite the recognition of the incredible improvement in this business. Despite the stewardship through a difficult Europe.

Nothing seems to matter.

After this quarter I am convinced, now more than ever, that Alcoa is on track for a good year. But until it actually has one, this might not matter. The headwinds against the stock are that strong. The worries about its debt picture, despite its cash position, are that deep -- deep enough that an analyst on the call still felt compelled to ask if Alcoa needs to issue equity in order to fix its balance sheet and pay the debt off that comes due this year.

Klaus Kleinfeld is the Rodney Dangerfield of CEOs. He does not get the respect he so very much deserves. One day it will happen. It just isn't happening now. I think it is a mistake that it isn't. But no judgment could be less consequential than mine about this vastly transformed company and its tremendous book of business.

One day that judgment will gain clout, and the stock will go back to where it was a couple of years ago -- when the company was not doing as well as it is now.

But not yet. Unlike so many other stocks, moreover, Alcoa is not paying you to wait, given that meager 1.4% dividend yield. Let's just hope, for Alcoa's sake, that it won't be because of a merely rising yield, but because of an increased payout. Maybe that's the only way for Kleinfeld to get respect and for his company's stock to reach the heights it deserves.

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