"We like the growth story driven by mid and downstream operations, as well as management's history of taking costs out of the model," analysts said.
"The outlook for the commodity upstream operations is more controversial, but we think the price recovery looks rational. We value shares at $22 to $24 based on an EV/EBITDA multiple of 8 to 8.5x our 2015 estimate. Our 2014E/2015E EPS are 83 cents/$1.24," analysts added.
Alcoa is a fully integrated supplier of aluminum products with up, mid and downstream operations. In the upstream, Alcoa produces the raw material alumina, as well primary aluminum. The mid and downstream operations convert primary aluminum (as well as other metals such as titanium and alloys) into shaped and finished products.
Shares of Alcoa are up 0.41% to $17.28 in pre-market trading.
Separately, TheStreet Ratings team rates ALCOA INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate ALCOA INC (AA) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, increase in net income, good cash flow from operations and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- AA's revenue growth has slightly outpaced the industry average of 3.0%. Since the same quarter one year prior, revenues slightly increased by 8.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
- Powered by its strong earnings growth of 500.00% and other important driving factors, this stock has surged by 82.38% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, AA should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Metals & Mining industry. The net income increased by 520.8% when compared to the same quarter one year prior, rising from $24.00 million to $149.00 million.
- Net operating cash flow has increased to $249.00 million or 16.35% when compared to the same quarter last year. In addition, ALCOA INC has also vastly surpassed the industry average cash flow growth rate of -55.16%.
- ALCOA INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ALCOA INC swung to a loss, reporting -$2.15 versus $0.17 in the prior year. This year, the market expects an improvement in earnings ($0.82 versus -$2.15).
- You can view the full analysis from the report here: AA Ratings Report