Alcoa Jumps on Upgrade From JPMorgan, Aluminum Outlook

Michael Teague |

JPMorgan Chase (JPM) , along with other titans of finance like Goldman Sachs (GS) , retreated from the commodities business after a veritable buffet of evidence emerged that supported allegations of price-fixing allegations in the latter half of 2013, but that doesn’t mean that their analysts stopped covering commodities stocks.

This fact was prominently on display on Tuesday, with shares for US aluminum giant Alcoa Inc. (AA) jumping 8 percent to a 52-week high of $12.28, after the nation’s second-largest bank upgraded the company’s stock from neutral to overweight and upped its 12-month price target from $9 to $15 per share.

The upgrade comes not a week after the bank cut its estimates for aluminum surplus in 2014 by nearly half, a decision that was based mainly on the expectation of substantially lower exports of the metal out of China.

JPM analyst Michael Gambardella also nearly doubled up on the bank’s previous forecast for full year earnings as well, saying that Alcoa would bring in some $0.78 per share. The metal manufacturer’s efforts to keep a leash on refining operations in 2013 based on widely held expectations of global oversupply are suddenly paying off, as prices for bauxite (aluminum ore) in China are expected to rise this year.

Gambardella’s Tuesday note explained in greater detail that “Given the pace and amount at which premiums have recently increased, it is clearly difficult to forecast for how long they will remain near current levels which we believe provide a significant amount of earnings support to the company’s primary aluminum smelting operations.”

The news also proved to be a boon to other aluminum manufacturers, with substantial gains for Alumina Ltd. ($AWC), Century Aluminum (CENX) , and Noranda Aluminum Holding Corp. (NOR) , with each gaining at least 5 percent by midday trading.

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Companies

Symbol Name Price Change % Volume
AA Alcoa Inc. 30.90 -0.25 -0.80 5,778,259
NOR Noranda Aluminum Holding n/a n/a n/a 0
JPM JP Morgan Chase 84.07 0.38 0.45 18,996,905
CENX Century Aluminum Company 9.77 0.05 0.51 1,289,276
GS The Goldman Sachs Group Inc. 235.56 4.18 1.81 6,595,738
MEGH Megalith Corp 0.00 0.00 0.00 0

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