On Wednesday, Wolfe Research raised its rating on Alcoa Corp (NYSE:AA) stock from Peer Perform to Outperform, with a new price target set at $36.00. The revision follows a period of share price weakness over the past month, contrasting with an approximate 6% increase in aluminum prices since the firm's last rating adjustment.
The upgrade is partly attributed to Alcoa's increased stake in Alumina (OTC:AWCMY) Ltd, which capitalizes on the strength of alumina, a commodity that has seen a significant price surge this year, climbing 48%.
The analyst noted that the higher costs for alumina, a key input in aluminum production, could underpin aluminum prices by making the global cost curve steeper and potentially deterring the reopening of more than 1.2 million tons of idle smelters in Europe.
Alcoa's stock is also expected to benefit from several factors, including anticipated Federal Reserve rate cuts, the potential for copper to be substituted by aluminum in various applications, and China's efforts to limit its smelting capacity. These elements are seen as supportive of commodity prices.
The analyst predicts limited downside risk to aluminum prices, which have recently been trading in a spot range on the London Metal Exchange (LME) between $2,300 and $2,500 per ton. Wolfe Research's estimate for the second half of the year is slightly higher, ranging from $2,425 to $2,450 per ton. The firm's outlook suggests a stable to positive trend for aluminum prices in the near term.
In other recent news, Alcoa Corporation announced the successful acquisition of Alumina Limited, solidifying its position as one of the largest bauxite and alumina producers worldwide. The all-stock transaction, valued at approximately $2.8 billion, has resulted in Alcoa fully owning and controlling the Alcoa World Alumina and Chemicals joint venture.
In terms of financial performance, Alcoa reported revenues of $2.9 billion and a net income of $20 million in its Q2 2024 earnings call. The company's estimated adjusted EBITDA was revised upward to $277 million by B.Riley.
Analyst firms Morgan Stanley and Citi have both raised their price targets for Alcoa, with Morgan Stanley upgrading the company from Equalweight to Overweight due to disruptions in global alumina supply. Citi maintained a 'Buy rating' for Alcoa, citing anticipated cost savings and the cyclical nature of the company's earnings.
In addition to these developments, Alcoa has been focusing on safety and profitability improvement, achieving operational stability in smelter production despite alumina supply challenges. The company anticipates annual cost savings of about $30 million from a vessel purchase in Brazil. These are some of the recent developments surrounding Alcoa Corporation.
InvestingPro Insights
Alcoa Corp (NYSE:AA) has navigated through market fluctuations with a current market capitalization of $7.81 billion. Despite recent volatility, analysts are showing optimism for the company's performance. According to InvestingPro Tips, there is an expectation of net income growth this year, with three analysts having revised their earnings upwards for the upcoming period. This aligns with the positive outlook from Wolfe Research, indicating potential for the stock to outperform.
On the financial side, Alcoa is trading at a high EBIT valuation multiple, reflecting investor expectations of future earnings growth. However, the company's gross profit margins remain weak at 9.08%, which may be a point of concern for investors looking at profitability. Additionally, the stock has experienced a significant price drop over the last three months, down by 27.83%, but analysts predict profitability for the company within the year, which could signal a turnaround for interested investors.
For readers seeking more in-depth analysis, InvestingPro offers additional insights, including a total of 7 InvestingPro Tips for Alcoa Corp, which can be found at https://www.investing.com/pro/AA. These tips provide further guidance on the stock's performance and future outlook.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.