Alcoa's Profitability Program Reaping Results - Analyst Sees Tailwinds From Lagged Alumina Pricing

B Riley Securities analyst Lucas Pipes maintains Alcoa Corporation AA with a Neutral rating, raising the price target from $39 to $43.

According to the analyst, Alcoa is highly focused on closing the Alumina Limited acquisition immediately, which appears to be comfortably on pace for the August 1 target.

For the operating footprint, the company has made strides in its profitability improvement program, with a $350 million run-rate achieved to date and $295 million left to achieve over the second half of the year and 2025.

According to the analyst, final bids are being collected for a potential San Ciprian sale, but “hard decisions” are still expected if a sale or asset optimization is unsuccessful.

Pipes writes that investors are focused on potential through-cycle earnings on the back of the improvements.

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The analyst tweaked the third-quarter adjusted EBITDA estimate from $437 million to $427 million.

Alcoa’s profitability program is seeing results, with a $350 million run-rate of improvement achieved thus far.

Of this total, $250 million is attributable to raw materials savings, while the next largest buckets are the productivity and competitiveness program ($30 million of a targeted $100 million) and the Warrick optimization and IRA benefit ($30 million).

According to JP Morgan analyst Bill Peterson, roughly 55% of its cost-saving initiatives (targeting a $645 million run-rate by 2025 vs. 2023 levels) have already been achieved.

Peterson writes that, low hanging fruit has been captured and remaining tailwinds will be contingent on execution.

Into the third quarter, the analyst projects further tailwinds from lagged alumina pricing and notes a decision on its lossmaking San Ciprian complex as a likely next catalyst.

Price Action: AA shares are trading lower by 1.98% to $36.08 at last check Thursday.

Photo via Wikimedia Commons

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