Alcoa (NYSE:AA) is expected to provide a strategy update with its results on October 18, with all options on the table as its stock price underperformance over past year is a clear message that the current approach is not working, according to Jefferies analysts.
In an update to clients, they noted that long-term value can be seen in Alcoa (NYSE:AA) shares and would be buyers at the current price, especially after significantly underperforming shares of other pure-play aluminum producers as well as major miners.
"Alcoa's shares have fallen in absolute terms even while the aluminum price has remained rangebound throughout 3Q – we believe this underperformance will reverse," the analysts wrote.
They have a ‘Buy’ rating on the stock, boosting their target price by 55% to $45 per share.
Analysts at Jefferies also recognize, though, that the company has some clear issues to work through including providing a timeline and detailed path for bauxite mine permitting in Australia and outlining a clear strategy to generate positive free cash flow even if commodity prices do not go higher.
They added that Alcoa's cash balance has fallen nearly 40% since the second quarter of 2022, and the company may look to issue equity (at a depressed price) or sell non-core assets (at depressed valuations) over the next 12 to 18 months.
"We consider this scenario to be unlikely unless there is a major global economic downturn."
Shares of Alcoa rose nearly 4% to $27.76 in late-afternoon trading on Tuesday.
Contact Sean at sean@proactiveinvestors.com