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Alcoa (NYSE:AA) and Freeport McMoRan (FCX) edge higher in Friday’s trading as Morgan Stanley upgrades shares to Overweight from Equal Weight with respective $50 and $62 price targets, saying the stocks have underperformed the broader market and are now reasonably priced.
Morgan Stanley’s Carlos De Alba says Alcoa (AA) is taking several actions to increase productivity, reduce costs and optimize its asset portfolio, targeting a ~$645M annualized EBITDA uplift when completed in 2025, and management reported solid progress as of Q1 2024.
De Alba says the current commodity price environment has made such self-help measures easier to execute, and it underpins Morgan Stanley’s forecast that Alcoa’s (AA) EBITDA will accelerate from an annualized Q1 of $528M to ~$2B in 2024-25 and that the company will post solid free cash flow in the coming years.
In a “tactical” upgrade of Freeport McMoRan (FCX), De Alba notes the company has delivered the Indonesia smelter, which he expects will lead to an agreement in the coming months to extend operations at the key Grasberg copper mine for 20 years beyond the current expiration in 2041.
The analyst sees an agreement resulting in a multiple re-rating and in upside to his DCF valuation of ~$2/share, even assuming a 10% reduced stake in Grasberg.
Alcoa (AA) and Freeport (FCX) join Buenaventura (BVN), Teck Resources (TECK) and Vale (VALE) among metals and mining stocks Morgan Stanley rates at Overweight.
