Credit Suisse Upgrades Alcoa After 'Key Downside Risk Factor' Dissipates

The bullish case for Alcoa Corp AA can be made after a "key downside risk factor" has played out while restructuring efforts could soon show benefits, according to Credit Suisse.

The Analyst

Credit Suisse analyst Curt Woodworth upgraded Alcoa from Neutral to Outperform with a price target lifted from $26 to $27.

The Thesis

Alcoa has direct exposure to the price of aluminum, which Woodworth said has fallen from around $420/t in April to its current level of less than $300/t. After the sharp fall, the commodity is now poised to move back higher as Chinese refineries are cash negative and the country could implement cuts to their production.

Fundamentals in the aluminum market are "not that bad" and Woodworth said that could benefit from new demand in packaging, automotive and aerospace. Aluminum also has exposure to electric vehicles through battery boxes and lightweighting requirements. The metal is also less sensitive to housing and infrastructure trends unlike copper.

Meanwhile, multiple restructuring efforts including streamlining its organization structure could result in $60 million to $80 million in savings, the analyst wrote in the note. Other cost savings could come from the company's final exit in Spain and a restructured labor agreement in Canada.

Management is expected to quantify any financial benefits in its coming earnings report.

Price Action

Shares of Alcoa were trading higher by 2.8% at $21.44.

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