Analyst: Why I'm Bullish On Alcoa's Aerospace Plan

Alcoa Inc AA's $4.6 billion plan to expand its aerospace business will produce wider margins, while the price of its aluminum products is set to rise, an analyst said Thursday.

"Contrary to some investors, we're positive" on the plan, said Bernstein's Vanessa Lau, who maintained an Outperform rating and a $22 target on Alcoa.

Alcoa's shares fell 5 percent recently when it unveiled a deal to acquire RTI International Metals Inc. RTI for $1.5 billion.

Related Link: Citi Updates Bullish Stance On Alcoa

Alcoa shares are off nearly 12 percent in the past month, and changed hands recently at $13.19, up $0.19.

The RTI deal comes on the heels of Alcoa's acquisition last year of Firth Rixson for $2.58 billion and the far smaller Tital deal completed last month. Each of the acquired companies supply the aerospace market with engineered parts.

Together, the deals bolster Alcoa's strength to diversify from its historical role as an aluminum smelter to downstream "value added" materials that offer higher margins, Lau said.

As for the company's upstream business, Lau said aluminum prices have no place to go but up.

"The current price is simply insufficient to provide incentives for a rational supply," Lau said.

Aluminum's price will rise 24 percent in 2016 from its current level, to $2,675 per ton, Lau predicted.