Alcoa has a plan for zero emissions. Buy the stock while it’s a bargain.

The outlook for aluminum is bright, as is the outlook for Alcoa, probably the best pure play for the flexible and lightweight metal—and cheap.


the stock (ticker: AA ) looks like a bargain, trading at a level that doesn’t reflect its issuer’s favorable operating costs, improved balance sheet, increased shareholder returns and one of the industry’s lowest carbon footprints. And investors are ignoring a potentially groundbreaking technology Alcoa is developing that could eliminate carbon emissions from the aluminum smelting process.

Jefferies analyst Chris LaFemina called Alcoa’s Elysis smelter project, a joint venture with Anglo-Australian

Rio Tido

(RIO), a potential “game changer” that would position Alcoa as a “truly green aluminum producer.” Alcoa is using the process on a small scale and aims to prove it on a commercial scale in the coming years.

Alcoa shares, at about $56, are down 43% from $98, reached in March before aluminum prices fell nearly 40% to around $2,400 a metric ton, or $1.09 a pound. The stock trades for just over seven times projected 2022 earnings of $7.68 per share and has a similar estimated 2023 price/earnings ratio.

“Alcoa is cheap,” says Wolfe Research analyst Timna Tanners. “It has a cost advantage and doesn’t get much credit for its green initiatives.” It has an Outperform rating and a $62 price target.

Recent price $56.92
Market value (billion) $10.2
YTD Change -4.5%
2022E EPS $7.68
2022E P/E 7.4
2023E EPS $7.41
2023E P/E 7.7
Net debt (million) $299
Dividend yield 0.7%


Sources: Bloomberg; company reports

While headquartered in Pittsburgh, Alcoa has most of its operations outside the US. It mines bauxite, an aluminum ore, mainly in Australia. It uses this to produce alumina, an intermediate product, and then refines the alumina into aluminum at smelters worldwide, including a 120-year-old facility in Massena, NY Alcoa separated its aluminum products operations into


(ARNC) in 2016 and now focuses on alumina and aluminum production.

Aluminum is still made using the same electricity-intensive process that Alcoa founder Charles Hall developed in the late 19th century. Alcoa benefits because about 80% of its electricity comes from renewable sources, most of it relatively cheap, carbon-free hydropower. Its production emissions — about five tons of carbon per metric ton of aluminum — are a third of the industry average of 15 tons, because many competitors rely on coal-generated power. This is increasingly important, as are many Alcoa customers


(AAPL), focus on carbon footprints. Alcoa’s total costs are in the bottom half of the industry.

Aluminum is widely used. It’s in cars, airplanes, packaging, wiring, and wind and solar power components. Used instead of heavier metals and plastic, it improves vehicle mileage and is recyclable. It can offer the strength of steel at a third of the weight.

Ford Motor

(F) best-selling F-150 pickup has an aluminum body.

“Aluminum is critical to the ongoing transition in manufacturing the electric vehicles and renewable energy infrastructure the world will need to transition to a low-carbon future,” CEO Roy Harvey said on Alcoa’s earnings conference call on July. Citing a forecast by the industry trade group, he said demand could increase by 80% by 2050, compared to a 2018 base.

China plays a large role in the aluminum market, accounting for over half of global demand and production.

In an Apple podcast this year, Eric Mandelblatt, who runs Soroban Capital Partners, an investment firm that owns shares of Alcoa, said China had “destroyed” the aluminum market by greatly expanding its electric-powered smelters in recent years. 20 years, to exploit its large coal reserves.

Aluminum prices have averaged less than $2,000 per metric ton over the past decade and are now no higher than they were in 1989. The case is that China is becoming more eco-conscious and vowing to curb smelting capacity. of to 45 million metric tons per year, up from about 40 million now. Global production capacity is 69 million. Alcoa makes about two million tons a year.

“Nobody’s holding hands,” Mandelblatt said on the podcast, referring to building new smelters. This could tighten the supply/demand balance over the next decade. High electricity prices in Europe and elsewhere have already idled one to two million metric tons of aluminum capacity. Alcoa CEO Harvey said on a July conference call that 10% to 20% of global capacity is uneconomic.

When Mandelblatt, who declined to comment Barron’s, spoke in February, aluminum was at $3,200 a ton — it peaked this year at $3,900 — which would allow Alcoa to earn $12 to $13 a share annually. At $5,000 a ton, which he called a dream scenario, Alcoa’s EPS could jump to nearly $30.

He also saw the possibility that in the next decade Western countries would impose a carbon tax of perhaps $100 a tonne on “dirty” aluminum made by China and other countries. This would benefit Alcoa, especially if its new melting technology proves successful.

Alcoa has used its strong earnings recently to bolster its balance sheet. It has net debt of just $299 million, against a market value of $10 billion, and total liabilities, including pensions and retiree health care, of $1.2 billion, up from $3.4 billion at the end of 2020.

Alcoa pays a quarterly dividend of 10 cents and bought back $350 million in shares — about 3% of its outstanding shares — in the first half of 2022.

“We have significantly strengthened the balance sheet and made great progress in improving our portfolio,” said Alcoa Chief Financial Officer William Oplinger. Barron’s in an email. “As a cost-focused, pure-play aluminum company, we are well positioned to capitalize on the growing demand for aluminum.”

There are caveats, including a weak Chinese real estate market dampening demand for aluminum. But with its low carbon footprint, strong balance sheet and potential breakthrough technology, Alcoa has both the metal and the power to be a long-term winner.

Write to Andrew Bary at

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