Introducing Valuation Models! 
Key Takeaways:
- The 2-Minute Valuation Model values Alcoa stock at $40 per share in 2 years.
- That’s a potential 38% upside from today’s price of $29 per share.
- The mining stock is projected to grow EPS by over 176% over the next 3 years.
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Alcoa Corporation (AA) is a pure-play aluminum company operating as an integrated producer across 26 locations in nine countries on six continents.
With five bauxite mines, five alumina refineries, and eleven smelters operating on 87% renewable energy, Alcoa has established itself as a leader in sustainable aluminum production, boasting a carbon intensity that’s one-third of the industry average.
Alcoa is actively pursuing $400 million in annual tariff relief from the U.S. administration while navigating through a challenging pricing environment.
CFO Molly Beerman recently highlighted the company’s strong Q1 cash generation and operational performance, positioning Alcoa for recovery as aluminum markets stabilize.
With AA stock now trading around $29 per share, Alcoa presents a compelling opportunity for investors seeking exposure to the critical minerals sector and the structural shift toward domestic aluminum production.
Let’s examine why Alcoa looks attractive using our 2-Minute Valuation Model.
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What is the 2-Minute Valuation Model?
Three core factors drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
Our 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized earnings-per-share (EPS), and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why Alcoa Stock Looks Undervalued
Forecast
Based on analyst estimates, Alcoa is expected to achieve solid earnings-per-share growth over the next three years despite near-term volatility.
EPS is projected to grow from $1.35 in 2024 to $3.73 by 2027, representing a 176% total increase, though this includes recovery from cyclical lows.
This earnings growth for Alcoa stock is likely to be driven by:
- Tariff Relief Progress: Active engagement with the U.S. administration on $400 million in annual tariff relief, with CEO Bill Oplinger directly advocating with the Trump administration.
- Operational Excellence: Strong Q1 cash generation and production levels, with 87% renewable energy providing cost advantages.
- Australian Mine Development: Expected approval for higher-grade bauxite access by 2026, adding 1 million metric tons of alumina production and $15-20 per tonne cost savings.
- Strategic Asset Monetization: $1.3 billion Ma’aden transaction closing in June, plus potential data center development at former smelter sites
For our valuation, we estimate that the mining stock will reach $3 in EPS by 2027.
Check out Alcoa’s full analyst estimates (It’s free) >>>
Is Alcoa Stock Undervalued Right Now?
Alcoa stock trades at around 13x forward earnings, which is above its 12-month average P/E of 12.50x, as shown in the valuation chart.
Given the company’s leadership in sustainable aluminum production, strategic positioning for U.S. domestic production initiatives, and potential for operational improvements from Australian mine development, a forward P/E multiple of 13x appears reasonable for our conservative valuation.
Fair Value of Alcoa Stock
Using our 2-Minute Valuation Model and applying a conservative approach:
- Conservative 2027 EPS estimate: $3
- Conservative forward P/E multiple: 13x
- Expected dividends over the next 2 years: $1
Expected Normalized EPS ($3) * Forward P/E ratio (13x) + Expected Dividends ($1) = Expected Share Price ($40)
The 2-year expected Alcoa stock price we would get from this valuation is $40 per share.
With Alcoa stock currently trading at around $29 per share, this implies a potential upside of 38% over the next two years or a 17% annualized return.
Alcoa stock is well-positioned to deliver outsized gains to shareholders, given that the broader markets’ average annual returns have been around 10%.
Remember, this is just a valuation exercise, and we don’t know for sure what the stock’s price will be in the future.
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What is Alcoa Stock’s Average Analyst Price Target?
Analysts maintain a cautiously optimistic outlook on Alcoa’s prospects. The consensus target price is approximately $37 per share, indicating analysts see about 26% upside from current levels.
Risks to Consider
Despite the bullish outlook, investors should be aware of several risks that could impact Alcoa’s growth trajectory:
- Commodity Price Volatility: Aluminum and alumina prices are subject to global supply and demand dynamics, which can impact margins.
- Tariff Uncertainty: While pursuing relief, current tariffs have created pricing pressures, with the LME dropping over $200, and insufficient Midwest premium gains.
- Operational Challenges: The recent Spanish smelter power outage demonstrates vulnerability to infrastructure issues and permitting delays.
- Geopolitical Risks: The evolution of Russian sanctions and China’s trade policies could reshape global aluminum flows and pricing.
TIKR Takeaway
Alcoa presents a unique investment opportunity in the critical minerals sector during a period of structural change.
Active tariff relief advocacy, sustainable production advantages, strategic asset development in Australia, and positioning for U.S. domestic aluminum production growth drive the potential upside for AA stock.
While commodity cycles create volatility, Alcoa’s integrated business model, spanning from bauxite to aluminum, combined with its renewable energy advantages and strategic geographic positioning, provides competitive differentiation.
CFO Molly Beerman’s focus on operational excellence, debt reduction toward the $1-1.5 billion target, and strategic capital allocation provides confidence in Alcoa’s ability to capitalize on the growing demand for sustainably produced critical minerals.
Management’s disciplined approach to strengthening the balance sheet while pursuing growth opportunities positions the mining entity well for the next cycle in the aluminum market.
Is Alcoa stock a buy over the next 24 months? Use TIKR to check the stock’s analyst price targets and growth forecasts to see if it is undervalued today.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
