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Alcoa Pullback On Revised Second-Quarter Guidance 'Overdone,' Morgan Stanley Says

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Alcoa Pullback On Revised Second-Quarter Guidance 'Overdone,' Morgan Stanley Says

Alcoa's (AA) stock pullback after the company flagged near-term headwinds was "overdone" relative to the limited impact on earnings, Morgan Stanley said in a note e-mailed Thursday.

Alcoa expects an approximately $60 million sequential headwind to its alumina segment's adjusted earnings before interest, taxes, depreciation, and amortization in the fiscal second quarter, it said in an investor presentation on Wednesday.

The impact is mainly driven by higher production costs at its Pinjarra refinery in Australia, elevated energy expenses linked to the Middle East conflict and lower price and volume impacts from bauxite offtake agreements, the company said.

The stock closed Wednesday trading down about 9.5%, but was up 2.5% in the most recent premarket activity.

Morgan Stanley believes the guidance impacts its full-year estimates for the company by just about 2%, and Alcoa continues to benefit from a favorable aluminum price environment.

"Solid cash flow generation will lead to a rapid decline in Alcoa's expanded net debt -- even without any site sales to data centers -- leaving room for potential increase to shareholder returns via higher base dividends or buybacks," Morgan Stanley said.

The brokerage maintained its Overweight rating on the stock but lowered its price target to $79 from $80.

Morgan Stanley now expects fiscal second-quarter EBITDA of $947 million for the company, down about 3% from its previous outlook. It also lowered its adjusted EPS estimate to $2.38 from $2.46. Analysts polled by FactSet currently expect EBITDA of $985 million and EPS of $2.26 for the quarter.

For fiscal 2026, the brokerage expects EBITDA of $3.78 billion for the company and revenue of $15.25 billion, both down about 2% from its previous estimates.

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