Critical Analysis: Alcoa (NYSE:AA) and Ryerson (NYSE:RYI)

Alcoa (NYSE:AA) and Ryerson (NYSE:RYI) are both industrials companies, but which is the better business? We will compare the two businesses based on the strength of their analyst recommendations, risk, earnings, dividends, institutional ownership, profitability and valuation.

Dividends

Alcoa pays an annual dividend of $0.40 per share and has a dividend yield of 1.4%. Ryerson pays an annual dividend of $0.75 per share and has a dividend yield of 3.9%. Alcoa pays out 12.0% of its earnings in the form of a dividend. Ryerson pays out -340.9% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Ryerson has increased its dividend for 3 consecutive years. Ryerson is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Earnings and Valuation

This table compares Alcoa and Ryerson”s gross revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Alcoa	$11.90 billion	0.61	$60.00 million	$3.32	8.40
Ryerson	$4.60 billion	0.13	-$8.60 million	($0.22)	-87.44

Alcoa has higher revenue and earnings than Ryerson. Ryerson is trading at a lower price-to-earnings ratio than Alcoa, indicating that it is currently the more affordable of the two stocks.

Volatility and Risk

Alcoa has a beta of 2.26, indicating that its stock price is 126% more volatile than the S&P 500. Comparatively, Ryerson has a beta of 1.55, indicating that its stock price is 55% more volatile than the S&P 500.

Profitability

This table compares Alcoa and Ryerson’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Alcoa	6.79%	18.56%	7.02%
Ryerson	-0.15%	-0.65%	-0.22%

Institutional & Insider Ownership

94.8% of Ryerson shares are held by institutional investors. 4.0% of Ryerson shares are held by insiders. Strong institutional ownership is an indication that endowments, large money managers and hedge funds believe a company will outperform the market over the long term.

Analyst Recommendations

This is a breakdown of current recommendations and price targets for Alcoa and Ryerson, as provided by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Alcoa	1	5	6	0	2.42
Ryerson	0	1	0	0	2.00

Alcoa currently has a consensus price target of $42.75, suggesting a potential upside of 53.35%. Ryerson has a consensus price target of $25.00, suggesting a potential upside of 29.96%. Given Alcoa’s stronger consensus rating and higher possible upside, research analysts plainly believe Alcoa is more favorable than Ryerson.

Summary

Alcoa beats Ryerson on 12 of the 17 factors compared between the two stocks.

About Alcoa

Alcoa Corporation, together with its subsidiaries, produces and sells bauxite, alumina, and aluminum products in the United States, Spain, Australia, Iceland, Norway, Brazil, Canada, and internationally. The company operates through two segments, Alumina and Aluminum. It engages in bauxite mining operations; and processes bauxite into alumina and sells it to customers who process it into industrial chemical products, as well as aluminum smelting and casting businesses. The company offers primary aluminum in the form of alloy ingot or value-add ingot to customers that produce products for the transportation, building and construction, packaging, wire, and other industrial markets; and flat-rolled aluminum in the form of sheet, which is sold primarily to customers that produce beverage and food cans. In addition, it owns hydro power plants that generates and sells electricity in the wholesale market to traders, large industrial consumers, distribution companies, and other generation companies. The company was formerly known as Alcoa Upstream Corporation and changed its name to Alcoa Corporation in October 2016. The company was founded in 1886 and is headquartered in Pittsburgh, Pennsylvania.

About Ryerson

Ryerson Holding Corporation, together with its subsidiaries, processes and distributes industrial metals in the United States and internationally. It offers a line of products in carbon steel, stainless steel, alloy steels, and aluminum, as well as nickel and red metals in various shapes and forms, including coils, sheets, rounds, hexagons, square and flat bars, plates, structural, and tubing. The company also provides processing services. It serves various industries, including metal fabrication and machine shops, industrial machinery and equipment, commercial ground transportation, consumer durable equipment, food processing and agricultural equipment, construction equipment, oil and gas, and HVAC manufacturing. Ryerson Holding Corporation was founded in 1842 and is headquartered in Chicago, Illinois.