Alcoa (AA) Upgraded to Buy at Nomura Ahead of Tonight's Earnings Report

Ahead of the company's much-anticipated fourth quarter results after the close, Nomura Securities upgraded Alcoa (NYSE: AA) from Neutral to Buy with a price target of $23.00 (from $15.00), saying downstream acceleration and primary tailwinds will drive continued outperformance.

Analyst Curt Woodworth commented, "Our previous cautious view on AA had been based on concerns in the packaging segment and expectations for premiums to decline in 2H-14. While AA shares have been range-bound since mid year the aluminum market has shifted into greater deficit, driving physical premiums to above $500/tonne in US/Europe with FX providing a meaningful EPS tailwind of $0.20 annualized. The ongoing displacement of packaging capacity to automotive should stabilize packaging margins while significant growth in automotive should drive meaningful EBITDA growth for AA."

He added, "We are now well above the Street in terms of EPS forecasts and we believe the Street is underestimating the downstream earnings power over the next several years and likely has yet to adjust for sizable FX and physical premium benefits. We believe aluminum fundamentals should improve gradually over the next several years as deficits ex-China reduce LME inventory levels and contribute to sustained tight regional markets, allowing premia to remain high by historical standards."

For an analyst ratings summary and ratings history on Alcoa click here. For more ratings news on Alcoa click here.

Shares of Alcoa closed at $16.11 yesterday.

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