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On Thursday, UBS analyst Curt Woodworth revised the price target for Alcoa (NYSE:AA) stock, reducing it from $53.00 to $47.00, while keeping a Buy rating on the shares. Woodworth’s assessment is based on the recent performance of alumina prices, which have seen a significant drop from over $800 per ton in January 2025 to below $400 per ton. Despite this decline and its impact on Alcoa’s correlation with spot alumina prices, the analyst remains optimistic about the aluminum industry’s prospects. InvestingPro data shows Alcoa currently trades at $32.60, with analysts maintaining an overall bullish consensus and targets ranging from $40 to $58 per share.
Alcoa’s shares have not fully reflected the positive earnings momentum and consensus revisions observed in the fourth quarter of 2024, according to Woodworth. He notes that while alumina fundamentals present challenges, the current prices are nearing the cost curve, which could limit further downside. Historically, alumina has traded well into the cost curve for extended periods. According to InvestingPro analysis, Alcoa appears undervalued at current levels, with net income expected to grow this year and revenue forecast to increase by 11%.
Over the past six months, Alcoa’s stock has shown a limited correlation with the London Metal Exchange (LME) aluminum price, but it has been highly correlated with the alumina price. Woodworth points out that Alcoa’s earnings are more leveraged to the LME aluminum price than to alumina when considering the net basis (adjusting for alumina consumed internally).
With the pressures from lower alumina prices largely behind them, Woodworth believes that the market will shift its focus to the positive outlook for aluminum. He highlights Alcoa’s attractive valuation at approximately 4.5 times enterprise value to earnings before interest, taxes, depreciation, and amortization (EV/EBITDA), strong free cash flow, and ongoing debt reduction efforts. The reiteration of the Buy rating accompanies the new price target of $47.00 per share. Recent InvestingPro data confirms this attractive valuation, showing an EV/EBITDA of 5.88x and a beta of 2.55, indicating significant potential upside for risk-tolerant investors. Subscribers can access the comprehensive Pro Research Report for deeper insights into Alcoa’s financial health and growth prospects.
In other recent news, Alcoa Corporation’s subsidiary, Alumina (OTC:AWCMY) Pty Ltd, has announced the pricing of a $1 billion offering of senior notes. These notes, guaranteed by Alcoa and certain subsidiaries, are intended to finance intercompany debts and issue dividends within the Alcoa group. The funds will also support cash tender offers for existing notes due in 2027 and 2028, with any remaining proceeds allocated for general corporate purposes. In another development, Alcoa’s President and CEO, William Oplinger, discussed potential impacts of new tariffs on the aluminum industry. He warned that these tariffs could lead to the loss of 100,000 jobs in the U.S. aluminum sector. Additionally, Oplinger noted that Alcoa’s operations in Canada could face a net negative impact due to the potential loss of a 10% Canadian exemption. Meanwhile, the U.S. has doubled tariffs on Canadian aluminum, raising them to 50%, which has led to a record high in aluminum price premiums. This move is part of a broader trade response to Ontario’s decision to impose a 25% tariff on electricity exports to the U.S. As the market adjusts, investors are closely monitoring these developments and their implications for the aluminum industry.
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