Goldman Sachs Upgrades Alcoa On Higher Commodity Prices

Alcoa Corp AA is poised to benefit from its meaningful leverage to higher commodity prices, according to Goldman Sachs.

The Alcoa Analyst: Emily Chieng upgraded the rating for Alcoa from Sell to Buy, while raising the price target from $19 to $32.

The Alcoa Thesis: The Sell rating was based on the company’s weaker free cash flow generation relative to peers, and the higher costs associated with its aluminum assets versus its bauxite/alumina portfolio, Chieng said in the upgrade note.

“However, with our commodities team’s upgrade of our aluminum price forecasts to $2,300/$2,500/$2,750 per tonne in 2021/2022/2023 (which are 15%/24%/39% above Bloomberg consensus), we believe these concerns are broadly alleviated and now expect deleveraging to accelerate,” he noted.

“Additionally, we expect AA to benefit from higher seaborne alumina prices, and see the company’s assets screen attractively on the emissions intensity curve, particularly as the focus on low carbon intensifies,” the analyst wrote.

Despite the rally in Alcoa’s shares since November, the stock has "lagged North American miners, with the shares up only 28% since the beginning of 2020, versus copper equities up ~140% and the S&P500 +20%,” Chieng said, while noting that Alcoa is a “beneficiary of the global reflation trade.”

AA Price Action: Shares of Alcoa had risen by 9.71% to $30.16 Wednesday afternoon.

(Photo: Alcoa plant in Mojøen, Norway, photo by Jarle Vines Jarvin via Wikimedia Commons)