Alcoa Stock Price Forecast January 2022 – Time to Buy AA Stock?

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Alcoa (AA) stock is trading higher in US premarket price action today. The stock soared last year but is trading flat in 2022.

Alcoa is an integrated company and is the largest US-based aluminum producer. The stock has benefited from the strength in aluminum prices. Can AA continue its good run in 2022 as well?

Alcoa stock recent developments

Alcoa released its fourth-quarter earnings yesterday after the markets closed. The company reported revenues of $3.3 billion in the quarter, which were 7% higher than the previous quarter. It was the highest quarterly revenue for AA in three years. The company posted an adjusted EBITDA of $896 million while the adjusted net income was $475 million. Both these metrics were a record.

However, the company posted a GAAP loss per share of $2.11 amid a $1.1 billion restructuring charge. Over the last decade, Alcoa has been recording these restructuring charges in almost every quarter. That said, the company’s earnings in the quarter were better than expected.

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AA reported strong results

Alcoa reported operating cash flows of $565 million in the quarter and ended the year with total cash of $1.9 billion. The company has been taking several portfolio actions to streamline its assets. During the quarter, it sold the Rockdale site in Texas for $240 million. It also announced the permanent closure of the Wenatchee smelter. It also reached an agreement in Spain to curtail the San Ciprián smelter.

Alcoa has also been making voluntary contributions to the pension plan. After the spin-off, Alcoa inherited massive pension liabilities of the combined entity. However, thanks to the strong commodity prices over the last two years, the company has been addressing the underfunded pension issue. At the end of 2021, it had U.S. qualified pension liabilities of $2.6 billion, which was almost $2 billion lower than the previous year.

Alcoa has negative net debt

At the end of 2021, it had $1.8 billion in debt which was below its cash holdings. The company has also started to return cash to the stockholders and during the quarter it paid $19 million as dividends and repurchased $150 million worth of its shares.

Expressing optimism over the results, Alcoa’s CEO Roy Harvey said “We had a transformative year in 2021; we posted our highest ever annual net income, returned cash to our stockholders and significantly reduced our debt and pension obligations.” He added, “Our performance demonstrates that our long-term strategies are delivering value and strengthening Alcoa, so we can be successful through all phases of the commodity cycle.

AA sees aluminum supply getting hit

In its earnings call, Alcoa said that it expects disruption in global aluminum supply if Russia-Ukraine tensions escalate. Notably, Russia is the world’s second-largest aluminum producer. Also, the Ukraine-Russia conflict might lead to a rise in energy prices which would also impact aluminum prices. Aluminum production is energy-intensive and the rise in energy prices leads to cost-push inflation for producers.

alcoa stock forecast

Alcoa stock forecast

Of the nine analysts covering AA stock, seven have a buy rating while two have a hold rating. Its average target price of $66.33 is an 11% upside over current prices. The stock’s lowest and highest target prices are $57 and $75 respectively.

AA stock target price

Wall Street analysts have been raising their target price on Alcoa amid the positive outlook for aluminum. China has cut down on its massive aluminum production and its aluminum exports have come down. Also, aluminum demand is expected to get a boost as electric vehicle sales soar.

Alcoa stock long term forecast

In November, Analyst Christopher LaFemina upgraded AA stock from a hold to buy citing aluminum’s positive long-term outlook. “The outlook for aluminum has become more positive as the global push for decarbonization is intensifying. Demand, which has historically grown at 1.8x GDP, should accelerate as new end-markets (EVs, renewable energy) become more relevant. … Alcoa is a relative winner, in our view,” he said in his note.

He also expressed optimism over the company’s strong balance sheet and the capital returns in the form of share repurchases.

Should you buy AA stock?

AA stock trades at an NTM (next-12 months) enterprise value-to-EBITDA multiple of just about 3.6x. It can be tricky valuing commodity companies as their earnings peak when commodity prices are at cyclical highs. As a result, the valuation multiples are the lowest at the cyclical peaks.

That said, aluminum should continue its good run looking at the strong demand. Alcoa has also been addressing its legacy issues and at these prices, it looks a good buy for 2022.

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About Mohit PRO INVESTOR

Mohit Oberoi is a freelance finance writer based in India. He has completed his MBA in finance as a major. He has over 15 years of experience in financial markets. He has been writing extensively on global markets for the last eight years and has written over 7,500 articles. He covers metals, electric vehicles, asset managers, tech stocks, and other macroeconomic news. He also loves writing on personal finance and topics related to valuation.