Seaport Global Securities Starts Alcoa (AA) at Neutral
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Seaport Global Securities initiates coverage on Alcoa (NYSE: AA) with a Neutral rating and a price target of $11.00.
Analyst Josh Sullivan commented, "We are initiating coverage of Alcoa with a Neutral rating and $11.00 price target. The separation of the 130-year-old conglomerate into Arconic Inc. (value-added aerospace/auto) and Alcoa Corporation (heritage aluminum operations) is expected to be completed in 2H:16. On a sum-of-the parts basis we arrive at a value for the commodity Alcoa Corp. at $2.20 per share and Arconic Inc. at $9.30 per share. For Arconic near term, the recalibration of wide-body production outweighs the uptake of narrow-body production. Long term, the aerospace skyline is attractive with a significant narrow-body ramp in 2017; however, the supply chain will remain cautious until Boeing makes a final decision on 777 production in 2H:16. The commodity-oriented Alcoa Corp. faces the specter of rising Chinese restarts in 2H:16. Long term, Alcoa Corp is a fundamentally changed business with a streamlined cost structure, siloed operations that can be strategically pruned and aluminum pricing near lows. Net/net, we believe the separation will unlock value long term; however, given near-term hurdles our $11 price target offers a slight discount to our FY17 sum-of-the-parts valuation. Our price target is also based on 7.9x our FY17 EV/EBITDA estimate."
Shares of Alcoa closed at $10.12 yesterday.
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