Should You Expect More Gains from Alcoa in 2019?




Alcoa (AA), the leading US-based aluminum producer (XME), has seen an upward price action of 13.5% in 2019 based on its closing prices on February 22. Century Aluminum (CENX) and Rio Tinto (RIO) have risen 26.7% and 21.4%, respectively, during the same period. While Alcoa’s price action is largely in line with broader markets, it’s a welcome break for the stock after a disappointing 2018.

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Price action

In December, we noted that Alcoa could be a contrarian bet in 2019. With the stock up ~20% from its December lows, it would be prudent to look at the dynamics to gauge whether the stock could offer more gains in 2019 or frontloaded its 2019 gains. Goldman Sachs (GS) said that equity markets have frontloaded their 2019 gains. Goldman Sachs wants investors to tone down their expectations for the rest of the year.

Analysts’ recommendations

Looking at analysts’ recommendations, three recommended a “strong buy,” ten recommended a “buy,” and three recommended a “hold” or some equivalent. Alcoa’s mean consensus target price of $40.69 represents a potential upside of 34.9% over its closing prices on February 22.

Earlier this month, Morgan Stanley lowered Alcoa’s target price from $52 to $47. On January 28, Jefferies lowered Alcoa’s target price to $35. Berenberg lowered Alcoa’s target price after its fourth-quarter earnings.

Can Alcoa deliver more than 30% in 2019? In the next part, we’ll discuss analysts’ estimates.


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