Today, with an upgrade by JPM to (only) Neutral and a $15 price target, the stock is +7%.
What gives? Why is JPM so excited: First, their global commodity team has said they see a tightening of excess surplus in the metal itself.
This tightening is being expressed in premiums which are moving higher in recent weeks. JPM is raising their 2014 EPS forecast massively from $0.40 to $0.78. If their business becomes more profitable, the stock can run as they continue to move into higher specialty metals.
Meanwhile, revenue hasn’t moved higher since 2011 and isn’t expected to grow in 2014 at current prices.
Alcoa, who earns more than 48% of their revenue globally, has devoted significant expertise to the "Engineered Solutions" segment which has higher profit margins, as the core aluminum business remains oversupplied and lacking a major catalyst on demand.
Yes, aircraft and auto demand is picking up and has fully recovered from the crisis, but the world still has too much aluminum. Supply discipline needs to remain in force.