The incoming Trump administration’s anticipated tariffs on steel and aluminum are already impacting companies like Alcoa (AA), a leading provider of bauxite, alumina, and aluminum products, driving shares up. The company has reported earnings for the third quarter that exceeded expectations. This has been augmented by strategic actions, including acquiring Alumina Limited and progressive steps toward a cooperation agreement for the San Ciprián operations.
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Promising future earnings projections and a boost in EBITDA driven by increased alumina pricing have led analysts to upgrade Alcoa’s rating and elevate price targets. The stock offers income-oriented investors a stout option in the materials sector.
Alcoa Expands its Market Leadership
Alcoa produces and sells bauxite, alumina, and aluminum products. Operating worldwide, it is actively involved in bauxite mining operations and the processing of bauxite into alumina, which is then sold to customers for use in creating various industrial chemical products.
Alcoa has taken steps to improve its profitability by $645 million by the end of 2025 and is on track to achieve this target. The company has secured a new power agreement with AGL Energy Limited (AGLXY) to support future operations at its Portland Aluminium Smelter. Alcoa has also entered into a long-term agreement to supply up to 16.5 million tonnes of smelter-grade alumina to Aluminium Bahrain B.S.C. over ten years.
The company has announced selling its 25.1% ownership interest in the Ma’aden joint ventures to Saudi Arabian Mining Company for approximately $1.1 billion. Additionally, Alcoa has recently completed its acquisition of Alumina Limited, strengthening its market leadership. Finally, Alcoa is moving towards a strategic cooperation agreement with IGNIS Equity Holdings (IGPG) to support the continued operation of the San Ciprián complex.
Alcoa’s Recent Financial Results
The company has recently announced its results for the third quarter of 2024. Revenue of $2.9 billion missed analysts’ expectations, with alumina revenue increasing by 9% due to a 22% price increase and aluminum revenue decreasing by 5% due to lower shipments.
The company’s net income rose to $90 million, a vast improvement over the loss of $168 million in Q3 of 2023. Adjusted net income increased to $135 million, and adjusted EBITDA rose to $455 million. Non-GAAP earnings per share (EPS) of $0.57 beat consensus expectations by $0.32.
The company ended the third quarter with a healthy cash balance of $1.3 billion, as the Board of Directors declared a quarterly cash dividend of $0.10 per share, equating to a dividend yield of 0.88%.
Management has issued guidance, projecting alumina production for 2024, forecasting between 9.8 and 10 million metric tons. However, the company has raised its shipment estimation to between 12.9 and 13.1 million metric tons due to increased trading volumes. As a result, the fourth quarter of 2024 is expected to see an increase of $30 million on the alumina segment’s Adjusted EBITDA due to higher shipments and reduced production costs, while the aluminum segment performance is anticipated to remain stable.
What Is the Price Target for AA Stock?
The stock has been on an upward trend, climbing over 80% in the past year. It trades near the top of its 52-week price range of $23.80 – $47.44 and demonstrates ongoing positive price momentum as it trades above all major moving averages. The stock trades at a bit of a premium to industry peers -not uncommon for market leaders – with its P/S ratio of 0.83x compared to the Aluminum industry average of 0.48x.
Analysts following the company have been constructive on AA stock. For instance, Argus recently upgraded Alcoa to Buy from Hold with a $48 price target, noting optimism for growing future earnings as global demand for aluminum reaches record highs.
Alcoa is rated a Strong Buy overall, based on the most recent recommendations of nine analysts. The average price target for AA stock is $47.00, which suggests the company is fully valued, with a downside of 0.47 in the near term.
Alcoa in Summary
Alcoa’s strategic expansion and robust financial performance have positioned it for enduring success. The company’s stock has seen a solid uptick and displays substantial price momentum. Analysts maintain a bullish view, underscoring Alcoa as a strong material sector option.
