Monday, Morgan Stanley adjusted its stance on Alcoa (NYSE:AA) stock, moving from an Underweight to an Equalweight rating, and increased the price target to $36.50, up from the previous target of $28.50.
The adjustment comes after a reassessment of the operational risks that Alcoa faced in the prior year. The firm acknowledges that these concerns have been substantially mitigated and now views the company's risk-reward profile as more balanced.
Alcoa has made significant strides in the first quarter of 2024 with its cost reduction initiatives. These efforts are part of a broader action plan anticipated to boost the company's annualized EBITDA by approximately $645 million, compared to an EBITDA of roughly $0.5 billion in 2023.
The plan is expected to be fully realized by 2025. The current market conditions for aluminum have facilitated the implementation of these self-help measures, according to the firm's analysis.
Further developments have also played a role in the upgraded outlook. Authorities in Western Australia have provided clarity regarding the operations of bauxite mines, which has helped dispel previous uncertainties. Moreover, Alcoa could potentially benefit from additional tax credits under the Inflation Reduction Act if these credits are extended to raw materials such as aluminum.
Despite the positive developments and the increased price target, Morgan Stanley suggests that there is limited potential for further upside to the new price target of $36.50 per share. This tempered expectation is reflected in the firm's decision to assign an Equalweight rating to Alcoa's stock.
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