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Investing.com - Citi has resumed coverage on Alcoa (NYSE:AA) with a Buy rating and a $42.00 price target, according to a research note released Monday. Currently trading at $29.81, InvestingPro analysis suggests the stock is undervalued, with a Financial Health Score rated as "GOOD."
The investment bank had previously suspended its rating on the aluminum producer. Citi analyst Alexander Hacking set second-quarter 2025 EBITDA expectations at $393 million, which aligns with the current market consensus.
Citi models mid-cycle EBITDA for Alcoa at $1.9 billion based on post-split average EBITDA per ton in alumina and aluminum. The $42 price target represents approximately 5 times mid-cycle earnings, or roughly 6 times on spot prices.
The research note identifies free cash flow as the main risk, citing ongoing financial impacts from portfolio actions, particularly at San Ciprian, with limited free cash flow at spot prices and approximately $500 million on Citi’s mid-cycle estimates.
Citi’s Commodity Team expressed a bullish outlook on aluminum for the next 6 to 18 months, pointing to key demand drivers including data centers, artificial intelligence, and decarbonization efforts, alongside supply constraints from China’s production cap and competition for power from data centers.
In other recent news, Alcoa Corporation has completed the sale of its 25.1% stake in the Ma’aden Joint Venture to Saudi Arabian Mining Company for approximately $1.35 billion, consisting of shares and cash. This transaction will provide Alcoa with a gain of about $780 million, which will be recorded as a special item in the third quarter of 2025. The company has also declared a quarterly cash dividend of $0.10 per share for its common and Series A convertible preferred stock, scheduled for payment on June 6, 2025. Alcoa’s order book for the second quarter remains strong despite U.S. tariffs, although the company anticipates these tariffs to cost around $90 million in the same period.
Additionally, Alcoa has announced a favorable outcome in a tax dispute with the Australian Taxation Office, potentially leading to a refund of $67 million in June 2025. However, Alcoa’s San Ciprián facility in Spain has been affected by a nationwide power outage, prompting an assessment to determine the operational and financial impacts. This incident highlights the potential challenges in maintaining production stability. Investors are closely monitoring these developments as Alcoa continues to communicate updates through its official channels.
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