In this article, we’ll see how analysts are rating US aluminum producers. Century Aluminum (CENX) received “buy” ratings from two analysts polled by Thomson Reuters, and three analysts rated the stock as a “hold” or some equivalent. The stock received a mean consensus price target of $22.80, which represents a 46.0% upside over its June 27 closing price.
Alcoa (AA) received “strong buy” ratings from three analysts polled by Thomson Reuters on June 27, and seven analysts rated the stock as a “buy” or some equivalent. The remaining five analysts rated Alcoa as a “hold.” Alcoa’s mean consensus price target of $65.92 represents a 44.0% upside over its June 27 closing price.
Overall, analysts seem to favor Alcoa over Century Aluminum. Looking at the recent analyst action earlier this month, B. Riley Financial initiated coverage on Alcoa with a “hold” rating and a target price of $47.00. However, the brokerage is upbeat over Century Aluminum and started its coverage with a “buy” rating and a target price of $27.00. B. Riley Financial expects alumina prices to fall from their current levels.
Century Aluminum’s profitability has taken a hit this year due to higher alumina prices. The RUSAL sanctions and Alunorte curtailment are the two key factors that drove alumina to record highs this year. Because Century Aluminum relies on third parties for its alumina needs, its profitability takes a hit when alumina prices rise.
Will metal markets normalize?
In the metal markets, raw materials and metal prices generally move in tandem with each other, albeit with a lag. We could see the alumina-aluminum ratio fall to normalized levels later in the year. If the alumina-aluminum ratio falls to historic levels, it’s expected to support Century Aluminum’s earnings. Furthermore, the plant restart announced by Century Aluminum is expected to boost its 2019 earnings.
Alcoa also has some bullish drivers, which we’ll explore in the final article in this series.