Shares of Alcoa Inc. rose Monday after an analyst raised his earnings estimates well above what many other analysts think the largest U.S. aluminum producer is capable of.
Citi Investment Research analyst John H. Hill, in a client note Monday, increased his earnings per share estimate for this year by 24 cents to $3.44, and his earnings-per-share estimate for next year by $1.12 to $4.79.
Analysts polled by Thomson Financial expect, on average, Alcoa to earn $2.89 per share this year and $3.49 per share next year.
Shares rose $2.01, or 5.2 percent, to $41.04 in afternoon trading.
Hill, who reiterated his "Buy" rating and $50 price target, wrote that Alcoa stands to gain from at least six factors, a "high degree of power security and good control of costs," a weaker dollar, below-average carbon exposure, the benefit of selling low-margin downstream assets plus a "deep project pipeline."
On top of such company-specific strengths, Hill lifted his aluminum price forecasts. Noting that aluminum's current price is about $1.30 per pound, up 22 percent so far this year, the analyst estimates aluminum will average $2 per pound next year and $2.20 per pound in 2010.
"Aluminum seems well-supported by physical demand at current levels, and speculative overheating does not appear to be a factor," he wrote.
That physical demand is coming from Brazil, Russia, India and China, lower Chinese exports of aluminum and a higher and steeper cost curve, he said.
Finally, "Alcoa has attractive merger and acquisition qualities, like a defining global franchise, 'fixable' negatives, lack of controlling shareholder, growth potential from properties that would be difficult to duplicate and a non-Himalayan share chart," Hill wrote.
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