Join +750K new investors every month who copy stock picks from billionaire's portfoliosSign Up Free

Citi lifts Alcoa stock target on cost savings, maintains Buy

EditorAhmed Abdulazez Abdulkadir
Published 2024-05-21, 09:10 a/m
AA
-

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.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.