More Analysts Could Upgrade Alcoa
Recently, some of the analysts raised Alcoa’s target price. On September 13, BMO raised Alcoa’s target price from $45 to $60.
Although we don’t have historical valuation multiples for Alcoa because the stock was split late last year, its valuation multiples look reasonable.
Analysts seem to be factoring lower-than-current aluminum prices next year when it comes to aluminum producers’ 2018 revenue estimates.
Alcoa (AA), the leading US-based aluminum producer (XME), has risen 59.9% so far in 2017—based on the closing prices on September 13.
In the first eight months of 2017, Chinese aluminum exports were 3.26 million metric tons—5.8% higher than the same period the previous year.
According to estimates compiled by Thomson Reuters, Alcoa is expected to post an adjusted EBITDA of $2.08 billion in 2017 and $2.0 billion in 2018.
Since aluminum prices are higher in 3Q17 compared to 2Q17, you would expect Alcoa’s earnings to rise. However, there are other moving parts.
Aluminum prices have been strong in 2017 and have built on last year’s gains. The entire industrial metals space has come a long way since 1Q16.
Aluminum prices have been strong in 2017. So far, aluminum has risen more than 24.4% in 2017—compared to a 13.6% rise in 2016.
While aluminum prices are global and are decided by trading mechanisms, physical premiums are negotiated between the end buyers and sellers.
Alcoa (AA) is an integrated aluminum producer like Rio Tinto (RIO) and Norsk Hydro (NHYDY) and produces alumina and aluminum (DBB).
According to data released by the International Aluminum Institute, China produced ~2.7 million metric tons of aluminum in July 2017, which represents a year-over-year increase of 1.0%.
Although China’s economic indicators showed strong growth in the first half of 2017, the recent economic data came in lower than expected.
Aluminum prices have gained more than 22% so far in 2017. This trend was preceded by a 13.6% rise in 2016.
Leading US aluminum producer Alcoa (AA) closed at $38.47 on August 21. It’s been a decent year for Alcoa, and the stock has gained 37.4% so far.
As we noted previously, aluminum prices have been strong this year. Strength has been driven by positive supply and demand dynamics.
Alcoa stock (AA) has shown strength over the last couple of weeks. The stock’s upward price action has found support in rising aluminum prices, which have now topped the $2,000-per-metric ton level.
Century Aluminum (CENX) released its 2Q17 financial results on August 2 after the markets closed. The company reported revenues of $2.86 billion in 2Q17.
Arconic (ARNC) reported its 2Q17 earnings on July 25. The company reported revenues of $3.3 billion in 2Q17, a 0.8% rise compared to 1Q17.
Alcoa (AA) reported its 2Q17 financial results on July 19 after the markets closed. The company reported revenues of $2.86 billion in 2Q17 versus $2.66 billion in 1Q17 and $2.32 billion in 2Q16.