On Friday, Morgan Stanley (NYSE:MS) made a significant adjustment to its outlook on Alcoa Corp (NYSE:AA) shares, a leading producer of aluminum. The firm's analyst elevated the stock from Equalweight to Overweight, indicating a more favorable view of the company's potential performance in the market. Accompanying this upgrade was an increase in the price target for Alcoa's shares, which was raised to $50.00 from the previous target of $36.50.
The upgrade is rooted in the current disruptions in the global alumina supply, which have been substantial. According to the firm's global mining team, these disruptions have removed approximately 5.9 million tonnes from the market, which is about 10% of the global supply excluding China.
This significant reduction in available alumina is expected to keep prices higher than historical averages, with predictions of $500 per tonne in the second half of 2024 and $385 per tonne in 2025.
The situation is further exacerbated by China's increased need to import alumina, which adds to the tightening of the global supply. The analyst notes that this could constrain China's aluminum production, despite the country's announcements of restarting some output. As a result, aluminum prices are also anticipated to remain supported, with forecasts of $1.22 per pound in the latter half of 2024 and $1.12 per pound in 2025.
These projections suggest a more bullish outlook for Alcoa, as elevated prices for alumina and aluminum could potentially enhance the company's financial performance. The upgrade and price target adjustment by Morgan Stanley reflect an expectation of Alcoa's ability to benefit from the current market dynamics affecting the aluminum industry.
In other recent news, Alcoa Corporation is nearing the final stages of its acquisition of Alumina (OTC:AWCMY) Limited, with completion expected around August 2024. The acquisition, which has received regulatory approvals from Brazil's Administrative Council for Economic Defense and the Australian Competition and Consumer Commission, is seen as a value-enhancing transaction that will strengthen Alcoa's position in the aluminum industry.
Furthermore, Alcoa reported flat revenues of $2.6 billion and a net loss of $252 million in its latest earnings call. Despite these figures, the company's cash balance rose to $1.4 billion, supported by a $750 million green bond issuance.
In terms of analyst ratings, Morgan Stanley has upgraded Alcoa's stock from Underweight to Equalweight and raised the price target to $36.50, acknowledging the company's progress in mitigating operational risks and reducing costs. Similarly, Citi increased Alcoa's stock price target to $50.00, maintaining a Buy rating, citing anticipated cost savings and the cyclical nature of Alcoa's earnings.
These recent developments highlight Alcoa's strategic moves to strengthen its position in the market and the confidence expressed by financial analysts in the company's growth potential.
InvestingPro Insights
Morgan Stanley's recent upgrade of Alcoa Corp (NYSE:AA) to Overweight with a higher price target aligns with some of the data and projections from InvestingPro. With a market capitalization of $7 billion, Alcoa is a significant player in the aluminum industry. Despite a challenging past year with revenue dropping by 11.4%, the company has shown a strong return over the last three months, with a 24.64% increase. This could be indicative of the market's response to the same supply disruptions highlighted by Morgan Stanley.
An InvestingPro Tip suggests that despite weak gross profit margins of 7.34%, analysts are optimistic, predicting that the company will be profitable this year. This optimism is further supported by the company's strong return in recent months and expectations for net income growth. However, potential investors should be aware of the company's volatility, as reflected in the recent price movements, with a one-month price total return of -11.59%.
For those considering an investment in Alcoa, the InvestingPro platform offers additional insights and tips to guide your decision-making. With the use of coupon code PRONEWS24, new subscribers can get an extra 10% off a yearly or biyearly Pro and Pro+ subscription. There are 5 more InvestingPro Tips available for Alcoa, providing a comprehensive analysis for an informed investment strategy.
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