Back in May, UBS analyst Brian MacArthur wrote that Alcoa has a "sum of the parts" valuation of up to US$56 a share. "However, we note that multiple transactions, among other hurdles, may have to be overcome before such value could be realized," he wrote in a note to clients Tuesday. "Furthermore, by the time any such break-up may be ultimately achieved, actual values per business may change."
However, he is still raising his price target on Alcoa from US$46 a share to US$55 a share. He is applying a price-earnings multiple of 14 times to Alcoa shares, up from 12 times. He wrote that 14 times is still below historical averages, and below the implied multiple in Rio Tinto PLC's bid for Alcan.
UBS remains also very positive on aluminum, as it forecasts average prices of US$1.28 per pound and US$1.40 per pound in 2007 and 2008, respectively. Mr. MacArthur is maintaining his "buy" rating on Alcoa stock.
AA 1-yr chart