Alcoa (AA) Moves 12.1% Higher: Will This Strength Last?
Zacks Investment Research | Mar 04, 2021 05:07AM ET
Alcoa (NYSE:AA) shares ended the last trading session 12.1% higher at $30.83. The jump came on an impressive volume with a higher-than-average number of shares changing hands in the session. This compares to the stock's 43.9% gain over the past four weeks.
Alcoa shares gained as Goldman Sachs (NYSE:GS) upgraded its rating two notches from a “sell” to a “buy” and raised its target price by $13 to $32. The revised price target reflects an upside of 16.36% from the stock's previous close. The analyst had so far been concerned regarding Alcoa’s weaker free cash flow generation compared to peers and higher costs associated with its aluminum assets versus its bauxite/alumina portfolio, consequently warranting a sell rating.
Per Goldman’s commodities team’s latest forecasts, aluminum prices will rise to $2,300 per ton in 2021, $2,500 per ton in 2022 and thereafter attain $2,750 per ton in 2023. This drove the analyst to assign a buy rating on Alcoa based on the expectation that higher aluminium prices will translate into improved free cash flow for the company and help deleverage its balance sheet. Notably, as of Dec 31, 2020, Alcoa had $1.6 billion in cash on its balance sheet and a total debt balance of $2.54 billion.
Price and Consensus
This bauxite, alumina and aluminum products company is expected to post quarterly earnings of $0.46 per share in its upcoming report, which represents a year-over-year change of +300%. Revenues are expected to be $2.59 billion, up 8.8% from the year-ago quarter.
While earnings and revenue growth expectations are important in evaluating the potential strength in a stock, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
For Alcoa, the consensus EPS estimate for the quarter has been revised 8% lower over the last 30 days to the current level. And a negative trend in earnings estimate revisions doesn't usually translate into price appreciation. So, make sure to keep an eye on AA going forward to see if this recent jump can turn into more strength down the road.
The stock currently carries a Zacks Rank 3 (Hold). You can see To read this article on Zacks.com click here.
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