Century Aluminum Stock Analysis – NYSE: CENX

This Century Aluminum stock analysis is part of my full aluminum sector analysis. Here is a video discussing CENX stock and comparing it to KALU, AA, ACH & NYH. All except ACH are better than CENX, ACH is equal.

Aluminum Stocks Analysis

Century Aluminum stock price overview

CENX stock price movement is typical of an aluminum stock as it all depends on metal prices.

Century Aluminum stock price historical chart
Century Aluminum stock price historical chart

CENX stock mostly follows aluminum prices even if there are some divergences like it had been the case in 2015. Unfortunately for CENX shareholders, by 2016 all was back to where it is supposed to be.

Aluminum prices - Century Aluminum Investor Relations
Aluminum prices – Century Aluminum Investor Relations

Important to note here that Glencore purchases 65% of what CENX produces and Glencore owns 46.0% of the company on a fully diluted basis. When I analyzed Glencore, they mentioned the intention to sell many of the stakes they have in companies around the world to better balance the debt so they might sell this at a good offer.

Century Aluminum business and fundamental overview

CENX has three U.S. aluminum smelters, in Hawesville, Kentucky (Hawesville), Robards, Kentucky (Sebree) and Mt. Holly, South Carolina (Mt. Holly), and one smelter in Grundartangi, Iceland (Grundartangi). A pretty straightforward business.

One of the smelters could be shut down permanently due to uncompetitive input prices.

Century Aluminum Investor Relations
Century Aluminum Investor Relations

Century Aluminum hasn’t been profitable at all over the last years.

CENX stock analysis – income statement – Source: 2019 Annual report
CENX stock analysis – income statement – Source: 2019 Annual report

The balance sheet doesn’t look that good. On one hand, there is equity of $675 million, but if you close smelters and you are not making any money, then the real value of the assets might be much lower than the accounting value. Thus, there is no margin of safety.

CENX stock analysis – balance sheet – Source: 2019 Annual report
CENX stock analysis – balance sheet – Source: 2019 Annual report

The additional paid-in capital is at $2.5 billion while the equity remaining is at $675 billion. This only shows how difficult is has been to do business in the aluminum sector over the past decade. Given energy input prices in the US, only higher for longer aluminum prices would make this a good play. It is possible for that to happen, but unlikely.

A look at cash flows shows how the company is not even cash flow positive.

CENX stock analysis – cash flows – Source: 2019 Annual report
CENX stock analysis – cash flows – Source: 2019 Annual report

On the other hand, if aluminum prices remain low, Glencore might even liquidate it to take out at least some value, if possible.

CENX stock investment conclusion

The very low prices at cycle bottoms mean that the company is flirting with bankruptcy every time aluminum prices go lower. If aluminum prices go higher the stock surges back because there might be more value, but it is a risky game to play.

The ugliness of the aluminum business is perfectly described by the fact that CENX is still operating. It hasn’t been profitable for a while, but if Glencore closes it, it will lose for sure, if they keep it alive in hope of higher prices, they might make a buck.

However, by keeping zombie companies alive, you also keep supply strong and prices unlikely recover. This is the conundrum every cyclical industry is living with. The situation is emphasized by Aluminum Corporation of China where it is likely the government’s interest is just to keep production up and aluminum prices low.

To save itself as a sustainable business, aluminum prices should be above $2,200 where EBITDA would be around $120 million and then the company could be valued at $1 billion as it was the case with the recent Kaiser Aluminum acquisition.

CENX stock analysis – Aluminum sensitivity – Source: Century Aluminum Investor Relations

I don’t think CENX stock is a long-term investment, but could be a short-term swing trade. When aluminum prices or other metal prices go up, interest for related ETFs rises and consequently those ETFs automatically purchase stocks of CENX. With more than 40% of the stock held by Glencore, the float is just of $600 million and just inflows in an ETF like the SPDR S&P Metals & Mining ETF, might move CENX stock price as CENX makes 3% of the fund. I think this is actually what is keeping the stock alive, CENX’s stock exposure within ETFs and index funds as it is in 48 ETFs.

If you are interested in better aluminum stocks than CENX, check my full aluminum sector analysis.

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