Alcoa Could Return $525M In Capital In 2018, Credit Suisse Says

Alcoa Corp, the best operators in the industry and leaders in the production of Bauxite, Alumina and Aluminum products, could return $525 million in capital as dividends or buybacks in 2018, according to Credit Suisse.

The Analyst

Credit Suisse analyst Curt Woodworth upgraded shares of Alcoa from Neutral to Outperform and increased the price target from $42 to $61.

The Thesis

"The aluminum market is set to tighten into 2018 as structural policies in China addressing captive coal plants and illegal smelters remain intact," Woodworth said in a Tuesday note.

The upside to Alcoa price forecasts were driven by alumina and bauxite closures, the analyst said.

China's smog-fighting Blue Sky policy will affect captive coal power "more acutely" in 2018, "and zero tolerance on existing policies for carbon, seasonal cuts and illegal smelters should support higher prices," Woodworth said.

Credit Suisse raised its 2018 EBITDA estimate for Alcoa from $1.9 billion to $2.3 billion.

Alcoa's valuation is compelling and has catalysts ahead, Woodworth said. The company could be added to the S&P 500 Index in 2018, the analyst said. On the downside, Credit Suisse views China supply-side discipline and policy as the key risk.

The Price Action

After a lackluster trend in the first half, shares of Alcoa have grinded solidly higher in the second half of 2017. The shares are up over 70 percent year-to-date.

At the time of publication, Alcoa shares were surging 3.83 percent at $48.30.