Freedom Broker analysts expect Alcoa shares to rise after a strong quarter

Freedom Broker analysts maintained their “Buy” rating on Alcoa Corporation (AA) shares and raised the target price from $58 to $64. At the current quote of about $46.17, the upside potential is roughly 38.6%. In experts’ view, the strong rise in aluminum prices has already provided Alcoa with robust cash flow, while the main long-term driver could be the acquisition of South32’s assets, which could deliver about $900 million in synergies in net present value.

Alcoa is North America’s largest aluminum producer

Alcoa is one of the world’s largest producers of bauxite, alumina (about 8% of global volume), and aluminum (3.5% of global volume). Alcoa’s business spans the entire production chain—from bauxite mining to aluminum output. This allows the company to benefit from rising metal prices, but also makes its results sensitive to energy and raw material costs, logistics, tariffs, and operational issues at individual sites.

Strong aluminum prices drove a sharp profit increase

In Q2 2026, Alcoa posted record quarterly revenue of nearly $4 billion, up 24% from Q1 ($3.19 billion) and 31% above the year-ago level ($3.02 billion). Adjusted net income rose to $562 million versus $373 million in the prior quarter and $103 million a year earlier. 

Adjusted EBITDA increased 51% quarter over quarter to $901 million. The main growth driver was high aluminum prices. The realized price for third-party customers reached $4,752 per ton, providing the company with a significant boost to margins and cash flows.

The South32 deal could reshape the business structure

In July, one of Australia’s largest mining and metals companies, South32, agreed with Alcoa to sell almost its entire portfolio of aluminum assets. The deal value could amount to $5.6 billion. Under the transaction, Alcoa is acquiring South32’s assets in Australia, South Africa, and Brazil. These include stakes in the Boddington bauxite mine and the Worsley alumina refinery in Western Australia, the Hillside aluminum smelter and the idled Bayside smelter in South Africa, as well as the Mineracao Rio do Norte bauxite mine and alumina and aluminum production facilities in Brazil.

Freedom Broker estimates that integrating South32 into the business could create about $900 million in synergies in net present value, while cost savings in the first 12 months after closing could total about $50 million per year.

Analysts stress-tested the deal across various 2028 aluminum price scenarios—from $2.8k to $3.6k per ton. In all scenarios considered, the acquisition remains accretive to Alcoa’s earnings per share. 

Cash flow enables Alcoa to strengthen its balance sheet

In Q2, Alcoa generated $608 million in cash from operating activities, while free cash flow totaled $422 million. At quarter-end, the company’s cash stood at $1.4 billion.

Alcoa also redeemed the remaining $219 million of notes maturing in 2028. In analysts’ view, strong cash generation provides the company with additional flexibility to reduce leverage, fund investments, and execute strategic transactions. Alcoa’s market capitalization is about $125 billion.

Issues in Australia limit operational potential

Alcoa cut its 2026 alumina production guidance to 9.5–9.6 million tons, which is 0.2–0.3 million tons below the previous estimate. The main reason is unstable operations at the Pinjarra refinery in Western Australia, which were exacerbated by gas supply disruptions after Cyclone Narelle. This, along with the switch to backup fuel, led to additional costs of about $30 million in Q2.

Analysts estimate that the lost production volumes are unlikely to be made up in the second half of the year. At the same time, the company’s management expects that in Q3, the restoration of stable operations at Pinjarra and lower energy prices will deliver about a $10 million net positive effect after factoring in scheduled maintenance at other facilities.

Analysts see nearly 39% upside for the stock

Freedom Broker raised the Alcoa target price based on a forward EV/EBITDA multiple of 6.5x and an NTM EBITDA forecast of about $2.8 billion. Analysts lowered the multiple used from 7x, citing a reduction in the premium for geopolitical risks and ongoing operational issues in the alumina segment.

At the same time, Alcoa’s investment appeal, according to analysts, remains supported by a combination of three factors: strong cash flow amid the high-price cycle for aluminum, the potential effect from the South32 deal, and long-term growth in aluminum demand.

Additional catalysts could include rising demand from electric vehicles and renewable energy. Analysts estimate that by 2030, aluminum demand from electric vehicles could reach 10 million tons. Electric vehicles use about 25–27% more aluminum than internal combustion engine cars.

Not an individual investment recommendation.