Alcoa Stock Rises. It Still Isn't a Buy. -- Barrons.com

Al Root

An upgrade doesn't have to be a Buy recommendation for a stock to move.

Shares of Alcoa rose on Monday after Morgan Stanley analyst Carlos De Alba changed his rating on the stock to Hold from Sell. His target for the price went to $36.50 a share from $28.50.

The stock gained 1.6% to $36.09 in morning trading. The S&P 500 and Dow Jones Industrial Average were up 0.2%.

"We now see a more balanced risk-reward for Alcoa given the continued progress on cost-saving measures, reduced uncertainty on the path to resolving bauxite mining issues in Western Australia, and potentially more [Inflation Reduction Act] benefits to come," wrote De Alba in a Monday report.

Alcoa was mining lower-grade bauxite ore in 2023, but that problem isn't expected to persist because the government of Western Australia has approved company plans that will allow it to tap better sources. Bauxite is the main raw material for aluminum.

On cost, the company has already closed its Kwinana Refinery in Western Australia. And the IRA provides some U.S. production-cost credits that might be expanded further, De Alba wrote.

The upgrade comes after Alcoa reported its first-quarter earnings on Wednesday. While the numbers were solid, the company is still undergoing a transformation designed to cut costs and give it more control over its supplies of raw materials.

An upgrade to Hold doesn't change the share of analysts who rate a stock as Buy, but it does change the Sell-rating ratio. Now, 21% of analysts covering Alcoa stock rate shares Sell, while the average Sell-rating ratio for a stock in the S&P 500 is about 7%.

The Sell-rating ratio now matches the Buy-rating ratio at 21%. The average Buy-rating ratio for stocks in the S&P 500 is about 55%.

The average analyst price target for Alcoa shares is about $35. Through early trading Monday, Alcoa stock was up about 6% so far this year.

Write to Al Root at allen.root@dowjones.com

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April 22, 2024 11:52 ET (15:52 GMT)

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