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Alcoa Stock: Analysts Might Be a Little Too Optimistic

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Wall Street

In the previous part, we noted that Alcoa’s (AA) 2019 earnings estimates look elevated. Aluminum prices (RIO) are hovering near $1,800 per metric ton, while the Alumina Price Index is ~$400 per metric ton. Wall Street analysts look bullish on Alcoa stock.

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Analysts’ rating

Alcoa has received a mean consensus target price of $49.93 from the analysts polled by Thomson Reuters. The target price represents a whopping upside of almost 75% over Alcoa’s closing prices on January 11. The stock received a “strong buy” rating from three analysts. Ten analysts rated Alcoa as a “buy” or some equivalent, while three analysts rated the stock as a “hold.” Century Aluminum’s (CENX) target price represents a potential upside of 52% over its closing prices on January 11.

Outlook

China’s slowdown has been a major risk for metal and mining companies (XME). From aluminum’s perspective, the situation is particularly bleak. The automotive sector, the key aluminum end consumer, has been strained. Last year, China’s car sales fell for the first time in more than two decades. Unlike steel, where Chinese exports have been in check amid the crackdown on excess capacity and friction with trading partners, China’s aluminum exports are running at record levels. Given the bleak scenario, analysts seem a little too optimistic about Alcoa. Alcoa stock is getting too cheap to ignore at these price levels.

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