Goldman Sachs Upgrades Alcoa To Buy (AA)

Goldman Sachs is upgrading shares of Alcoa AA to Buy with a $22 price target, up from $17. In a note to investors, Goldman writes, "We are upgrading Alcoa to Buy with a 6-month price target of $22 (from $17). We view the structural industry change, driven by the de-linking of alumina from the aluminum price, as a potential major long-term contributor to Alcoa, which is the largest global third-party alumina seller. We also view the cyclical upturn in the aerospace cycle as another strong driver for Alcoa, which has significant exposure to this end market through its EPS and GRP divisions. These two divisions should contribute about 65% of incremental consolidated EBITDA over the next three years. Other positive drivers include the ramp up of higher-margin flat rolled capacities in Russia and China, and commissioning of Ma'aden, which we believe will be one of the lowest cost aluminum producing facilities in the world. We estimate that Alcoa will now earn $1.40/$1.65 in 2011/2012 (from $1.10/$1.25 prior), about 6%/11% higher than consensus, and can earn $1.95 on a normalized basis. We expect the stock to re-rate as the market appreciates the earnings capability of Alcoa as the dynamics of its various business segments improve." Shares of AA are up 33 cents to $17.33, a gain of 1.9% this morning.