Goldman Sachs Makes Bullish Comments on Aluminum (AA) (CSTM)

February 19, 2014 11:09 AM EST
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Goldman Sachs maintained a Buy rating on Alcoa (NYSE: AA) and a CL-Buy on Constellium N.V (NYSE: CSTM). Analyst Sal Tharani believes aluminum beverage can sheet could be the driver for the next leg of profit.

"Downstream aluminum market has been benefiting from long term secular growth trends in various end markets. In aerospace, a solid back log and strong build rates continues to drive aluminum sheet and plate demand. We believe that this story is well understood by investors. However, very recently another opportunity has surfaced i.e., body-in-white (BiW) or aluminum body for automotive," said Tharani. "The sheer size of automotive market and OEM's need to reduce the weight in vehicles to comply with stringent emission rules will be the next long-term secular driver of aluminum sheet, in our view. We believe that investors are just beginning to realize the BiW opportunity."

"We believe that there is another trend developing which investors have not yet focused on and could be a significant driver of margin enhancement. The transformation in the automotive industry is siphoning aluminum sheet out of aluminum can stock to BiW, which we believe could tighten can stock over the next few years. This is a fairly large volume product but is in overcapacity and is very competitive with low margins. We believe that this transition could be a significant source of margin expansion for downstream aluminum producers. Both CSTM and AA have fairly strong market shares in aluminum can sheet," he added.

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 $11.40 yesterday.


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