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Alcoa Inc. (AA) Up on Rising Demand and Stock Upgrade

By: , dated January 22nd, 2014

Shares of New York, NY, based Alcoa Inc. (AA) rose on Tuesday, against the backdrop of a mixed day in stocks overall. Alcoa Inc.’s stock was up 6.78%, rising 77 cents per share, to close at $12.13, on volume of 126,790,593 shares. The company’s stock was upgraded from “neutral” to “overweight” (buy) by an analyst at J.P. Morgan (JPM). The upgrade comes amid tightening aluminum supplies and increased demand for the metal from major customers.

Alcoa Inc. is the largest producer of aluminum in the United States, and the third largest producer in the world, with $23.7 billion in sales in 2012, and about 61,000 employees. The stock, which trades on the New York Stock Exchange, was up 34% in 2013.

In recent years, the aluminum industry has been reeling from weak prices caused by soft demand for the metal since the recession. However, last week, J.P. Morgan’s global commodities research team reduced it’s estimate for this year’s aluminum supply surplus by 46%, to 435,000 tons, at least partially on lower exports from China. The reduction in surplus supplies is expected to increase the price of the metal.

On Tuesday, J.P. Morgan increased Alcoa’s estimate of full year earnings for 2014 from $.40 a share, to $.78 a share. J.P. Morgan analyst Michael Gambardella increased his rating on Alcoa’s stock from “neutral” to “overweight” (buy), and raised his target price for the company’s stock from $9 to $15.

Alcoa is taking a $2.34 billion loss in the fourth quarter of 2013, the result of write-downs on the value of acquisitions it made over the years. The company has been countering lower aluminum prices by closing smelting plants, and shifting more of its production into rolled sheet aluminum and products for planes and cars.

Auto manufacturer and Alcoa client Ford Motors (F) plans to shift from steel to aluminum in the production of its 2015 F-150 pickup truck series. As a result of the shift from steel to aluminum, the new pickup trucks will be 700 pounds lighter than previous models, and therefore more fuel-efficient. Boeing (BA) also plans to increase the use of aluminum in the construction of its new fleet of airplanes.

Last week, Alcoa CEO Klaus Kleinfeld, in outlining the company’s shift from smelter operations to services, such as rolled products and the engineered products and services segments, noted “What you’re seeing reflected in the earnings is that we are building up our value-add businesses. We are growing it. It now makes up 57 percent of our revenues and 80 percent of our segment profits, and that’s what we’re going after.”

Citing the abundance of positive news for the aluminum industry, and Alcoa in particular, CNBC’s Jim Cramer, remarked, “This was a breakout quarter, and they shut down some more smelting. This company is on the warpath to make big money this year.”

Other News About Alcoa, Inc.
Look Out U.S. Steel, Here Comes The Aluminum Truck!
Alcoa is gearing up now for that demand, recently completing a $300 million expansion.
Greenland Courting Alcoa to Build Smelter, Finance Minister Says
Greenland hopes to begin formal negotiations with Alcoa on building a smelter.

Other Stocks in the News
ExxonMobil dips after Bank of America downgrade
Shares of ExxonMobil Corp. fell on Tuesday after analysts at BoA Merrill Lynch lowered their rating.
Boeing Sees Surge in Boutique Plane Funding After Norwegian Deal
Boeing Co. sees jump in the proportion of aircraft financed through private placements.

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