What happened
Shares of aluminum giant Alcoa (AA +1.34%) popped this week, rising 10.1% through the week as of 10:20 a.m. ET Friday, according to data from S&P Global Market Intelligence. It wasn't simply a rebound after the mining stock's recent decline in the broader market sell-off -- an analyst foresees strong growth in Alcoa through 2025.
So what
In a research report issued earlier in the week, analyst Christopher LaFemina at Jefferies Financial Group upgraded 2022 earnings forecast for Alcoa to $6.62 per share from $6.19 a share, according to MarketBeat. The analyst further expects Alcoa to earn $7.66 per share in 2023, $7.84 a share in 2024, and $9.32 per share in 2025.
In November, LaFemina upgraded Alcoa stock with a price target of $60 a share, driven by a strong outlook for the aluminum market based on the metal's rising demand as more nations strive to decarbonize.
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Alcoa is, indeed, on solid footing, having recently earned record net income in its third quarter as alumina and aluminum prices continued to rise. Alcoa also ended the quarter with only $1.8 billion in debt versus a cash balance of $1.45 billion. Aluminum is made from alumina produced from bauxite ore.
Its strong financials just prompted Fitch Ratings to upgrade its rating on Alcoa's debt. Alcoa's modest debt, low pension obligations, cost efficiency, production flexibility, and leadership in the industry are just some of the reasons behind Fitch's ratings upgrade. Fitch also raised its aluminum price forecast for 2022, largely because of low production from China.
China, the world's largest aluminum market, has been one of the biggest factors behind this year's rally in aluminum prices. China has curtailed aluminum production significantly in recent months in a bid to cut greenhouse gas emissions. China's state-owned researcher Beijing Antaike Information Development expects almost 49% of China's alumina this year to come from imported bauxite versus only 30% in 2015, according to Bloomberg.
Now what
Alcoa looks compelling given the industry fundamentals. Alcoa is also making some really smart moves like diversifying into red-hot areas such as high-purity alumina that's used in semiconductors and lithium-ion batteries for electric vehicles. With management also initiating Alcoa's first-ever dividend in October in what can be seen as an affirmation of Alcoa's financial fortitude, the stock looks like the kind that could continue to rally in 2022 and beyond.
