Morgan Stanley Likes Alcoa's Most Recent Report

Morgan Stanley analyst Paretosh Misra upgraded Alcoa AA to Overweight and introduced an $18 price target following the company's most recent earnings report.

The revised 2015-2016 EPS estimates are 33 percent above consensus.

Misra offered three main reasons why he upgraded the stock. First is upstream margin improvement. Slowing growth of Chinese supply should allow Alcoa to set premium pricing for shape, quality and location. Also, the Indonesian bauxite ban should have favorable long-term effects on raw material pricing.

Related Link: 3 Analysts Weight In On Alcoa's Earnings Beat

Second, there should be more auto sector catalysts. Misra predicts that Alcoa will have around a 30 percent share of the U.S. auto sheet market.

Lastly is the approaching recovery in the aerospace plate and U.S. can sheet business. The analyst also noted an expected a recovery in aerospace plate starting in 2015 and in the U.S. can sheet market in 2016.

Misra noted, however, auto and aerospace slowdowns could hurt downstream results and LME rule changes and Chinese smelter re-starts could drive aluminum prices lower.