Shares of aluminum giant Alcoa (AA - Free Report) screamed higher yesterday after JPMorgan (JPM - Free Report) raised its rating citing tightening global aluminum markets and higher regional aluminum premiums that would provide support to its earnings.
JPMorgan lifted Alcoa to “Overweight” from “Neutral” and increased its price target on the shares to $15 from $9 on expectations of tighter global supplies of aluminum following capacity reductions. The firm also nearly doubled the company’s earnings estimate for 2014 to 78 cents per share from 40 cents per share.
Alcoa’s shares shot up as much as 8.4% in the trading session yesterday to touch a fresh 52-week high of $12.31. The stock eventually closed at $12.13, gaining 6.8%. Alcoa has racked up a one-year return of around 37% and its shares are up roughly 14% so far this year.
Alcoa has been grappling with weak aluminum pricing. London Metal Exchange (LME) aluminum prices dropped to a four-year low during fourth-quarter 2013 given the oversupply of the metal in the market, evidenced by large aluminum inventories in LME warehouses. LME cash price fell 7% in the fourth quarter, hurting the company’s sales in the process.
Alcoa has taken up a number of restructuring measures (including closure of smelters) and is aggressively pursuing cost-cutting actions amid a weak pricing environment.
Alcoa swung to a loss in the fourth quarter, reported on Jan 9, on hefty goodwill impairment charges. Adjusted earnings missed the Zacks Consensus Estimate. Sales fell on weak aluminum pricing but beat expectations. The company expects aluminum demand to rise 7% this year.
Alcoa is witnessing strength in aerospace and automotive markets. The company sees significant growth of aluminum use in the auto sector this year as automakers increasingly look for the metal as a cost-effective mean to boost performance, safety, durability and fuel efficiency of their vehicles.
However, Alcoa is still witnessing softness across building and construction and commercial transportation markets. Moreover, weakness in non-residential building and construction market is expected to persist in Europe.
Alcoa is a Zacks Rank #3 (Hold) stock.
Other companies in the mining industry worth considering include General Moly, Inc. (GMO - Free Report) and Stillwater Mining Co. with both holding a Zacks Rank #1 (Strong Buy).