Goldman Sachs Says Buy Alcoa

Goldman Sachs has a Buy rating and a $22 price target on shares of Alcoa AA after it reported earnings last night. In a night to clients, Goldman Sachs writes, "Alcoa reported 2Q11 adjusted EPS of $0.32, in line with GS and the consensus estimate. The effective tax rate of 26% versus our estimate of 30% contributed about $0.02 to the bottom line. A significant improvement in working capital resulted in free cash flow of $323 mn, more than $425 mn better than our estimate of -$106 mn. The 1% higher-than-expected revenue was more than offset by 2% higher COGS. We are lowering our 3Q11/4Q11 estimates to $0.32/$0.35 from $0.37/$0.38 because of our lower aluminum price assumptions and higher costs. This lowers our 2011 EPS estimate to $1.26 from $1.35. We are also introducing quarterly estimates for 2012 of $0.37, $0.46, $0.44 and $0.37. Our six-month (P/E-, EV/EBITDA- and DCF-based) target price remains at $22 and we maintain our Buy rating on Alcoa." Shares of AA are down 26 cents in pre-market trading to $15.65, a loss of 1.6%.