Century Aluminum Upgraded: BMO Analyst Says Tariffs Will Push Volumes, Premiums Higher

The White House's steel and aluminum tariffs will lead to higher Midwest premiums for Century Aluminum Co CENX, according to BMO Capital Markets.

The Analyst

BMO analyst David Gagliano upgraded shares of Century Aluminum from Market Perform to Outperform and increased the price target from $20 to $28.

The Thesis

Century Aluminum shares do not reflect the valuation implications of higher company-specific volumes and BMO's views of higher-for-longer Midwest premiums, Gagliano said in a Sunday note. (See the analyst's track record here.)

The analyst estimates a "clearing Midwest premium" of about 20 cents per pound versus the spot price of 17 cents and historical price of 8 cents.

Assuming flat LME aluminum and alumina prices, BMO projects annual EBITDA of over $450 million once volumes and premiums reset.

The incremental EBITDA opportunity from the higher Midwest premium is $50 million to $60 million, Gagliano said. Ramping at Century's Hawesville, Kentucky facility added higher value-added aluminum products and another $20 million to $30 million to EBITDA over time, Gagliano said.

The analyst cautioned that EBITDA will most likely be lowered in the near term due to upfront Hawesville start-up costs, with no volume benefits.