Alcoa Gets $92 Price Target as B. Riley Backs South32 Deal

Alcoa Corp (NYSE:AA) drew a Buy rating and a $92 price target from B. Riley on July 1, a vote of confidence that comes weeks after the aluminum producer announced a $5.6 billion acquisition of South32’s bauxite, alumina, and aluminum assets. The stock has fallen roughly 12% since the deal was unveiled in late February, weighed down by debt concerns and a broader selloff in metals equities.

B. Riley’s target implies roughly 40% upside from Friday’s close near $65. The firm said the acquisition positions Alcoa to capture more of the aluminum value chain, from bauxite mining through smelting, at a time when global supply constraints and rising demand from the energy transition are tightening the market.

Alcoa’s purchase of South32’s aluminum division adds 2.5 million metric tons of alumina refining capacity and 1.2 million metric tons of aluminum smelting capacity, mostly in Australia and Brazil. The deal is expected to close in the second half of 2025, pending regulatory approvals. Alcoa will finance it with $2.1 billion in cash and $3.5 billion in assumed debt, pushing its net leverage above 3x earnings before interest, taxes, depreciation, and amortization.

That debt load is the main reason the stock sold off after the announcement. Investors worried about integration risk and a potential dividend cut. Alcoa’s management has said it plans to reduce leverage to below 2x within 18 months of closing, partly by selling non-core assets and using free cash flow from the expanded operations.

B. Riley’s reiteration suggests the selloff has gone too far. The analyst sees Alcoa’s combined bauxite and alumina operations generating $1.2 billion in annual EBITDA by 2026, assuming alumina prices stay near current levels around $450 a metric ton. That would cover interest costs and leave room for deleveraging.

The aluminum market itself is tightening. China’s production cap of 45 million metric tons, combined with rising demand from electric vehicles, solar frames, and power grid upgrades, has pushed global inventories to multiyear lows. London Metal Exchange aluminum stocks fell to 490,000 metric tons in June, the lowest since 2021. That backdrop supports higher prices for Alcoa’s output.

Alcoa’s own production costs are falling. The company has idled high-cost smelters in Spain and trimmed its workforce, bringing its average smelting cash cost to $2,850 per metric ton, down from $3,200 in 2023. With aluminum futures near $2,600 per metric ton, margins are thin but improving. A move above $2,800 would make most of Alcoa’s smelters profitable again.

The key risk remains execution. Alcoa has a mixed record on large integrations. Its 2016 acquisition of Alumax took longer than expected to deliver synergies. The South32 deal is bigger relative to Alcoa’s size. If the company fails to hit its debt-reduction targets, the stock could stay under pressure.

B. Riley’s $92 target is the highest on Wall Street. The consensus price target is $78, according to Bloomberg data. The spread reflects the uncertainty around the deal’s timing and the aluminum price outlook.

Alcoa reports second-quarter earnings on July 17. The results will give the first look at how the company’s cost cuts are tracking and whether it can generate enough cash to start paying down debt before the South32 deal closes.