Alcoa Stock Gains 10% After Morgan Stanley Turns Bullish

The bullish case for Alcoa Corp AA is based on expectations for the metals company to take full advantage of a "constructive outlook" for aluminum, according to Morgan Stanley.

The Alcoa Analyst: Carlos De Alba upgraded Alcoa from Equal Weight to Overweight with a price target lifted from $20.50 to $43.

The Alcoa Takeaways: The metal sector remains underowned by investors and offers attractive valuations, as it trades at a one standard deviation discount to the S&P 500 on an EV/EBITDA multiple, De Alba said in the upgrade note.

Aluminum stands as the most attractive metal given robust demand, constrained secondary supply, cost-push factors and logistical constraints, the analyst said. 

China's decarbonization efforts could help lift aluminum prices amid a tighter China market balance and reduced exports of aluminum, he said. 

Related Link: Goldman Sachs Upgrades Alcoa On Higher Commodity Prices

Alcoa's recent portfolio review and steps to improve overall profitability make it ideally positioned to take advantage of a bullish outlook for aluminum, De Alba said. 

The company's free cash flow generation should accelerate, and this will translate to superior shareholder returns, the analyst said. 

Shares of Alcoa are trading at four times 2022 estimated EV/EBITDA and 9.6% 2022 estimated free cash flow yield, the he said, adding that these levels offer "compelling value" to investors.

AA Price Action: Shares of Alcoa were trading higher by more than 10% late Wednesday morning at $30.29.