On Tuesday, Citi updated its outlook on Alcoa Corp (NYSE:AA), a leading producer of aluminum, by increasing the stock's price target to $50.00 from the previous $32.00. The firm has reaffirmed its Buy rating on the shares. The adjustment comes as Citi highlights the cyclical nature of Alcoa's earnings within the sector and the importance of evaluating mid-cycle EBITDA per ton over mid-cycle metals prices for processing businesses.
Alcoa's post-split Alumina (OTC:AWCMY) and Aluminum segment EBITDA per ton has shown significant variability, historically ranging from $25 to $200 per ton for Alumina and $10 to $625 per ton for Aluminum. These figures suggest a total EBITDA fluctuation from $0 to $4 billion. Citi has set a normalized EBITDA target for Alcoa at $1.8 billion, which includes $1.5 billion from historical performance plus an additional $300 million anticipated from incremental cost savings. The new price target is based on a 6.0x to 7.5x multiple post-AWC merger.
The analyst also reflected on the long-standing price ratio between copper and aluminum, which has remained between 3-4x for over 15 years. Given this ratio, a copper price of $12,000 per ton would correspond to an aluminum price in the range of $3,000 to $4,000 per ton. This observation underscores the firm's valuation approach and the factors influencing the revised price target for Alcoa's shares.
Alcoa's stock price target increase by Citi comes as the company continues to navigate the cyclical trends of the metals market. The firm's analysis suggests a positive outlook for Alcoa, with cost savings playing a significant role in the company's financial performance. The reaffirmed Buy rating indicates confidence in the stock's potential for growth.
InvestingPro Insights
Alcoa Corp (NYSE:AA) has been the subject of increased attention following Citi's revised price target and Buy rating. To provide further context, recent data from InvestingPro reveals that Alcoa's market capitalization stands at $7.64 billion, with a negative P/E ratio of -11.3, reflecting challenges in profitability. The company's revenue over the last twelve months as of Q1 2024 reached $10.48 billion, though it has experienced a decline of 11.4% during this period.
InvestingPro Tips indicate that despite the decline in revenue, analysts are optimistic about Alcoa's future, with net income expected to grow this year. Additionally, the stock has seen a strong return over the last three months, with a price increase of 53.03%. This aligns with the positive sentiment expressed by Citi, as the company may be poised for a turnaround. Two analysts have also revised their earnings estimates upwards for Alcoa, suggesting that the market may have undervalued its growth potential.
For readers interested in a deeper analysis, there are additional InvestingPro Tips available at https://www.investing.com/pro/AA. Subscribers can use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, which includes access to a comprehensive suite of investing tools and insights.
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