Alcoa Shares Can Recover In Second Half; Morgan Stanley Is Optimistic

In a report published Thursday, Morgan Stanley analyst Paretosh Misra maintained an Overweight rating on

, with a price target of $16. Although the company's 2Q15 EPS missed the consensus and the estimates, the analyst believes that there are drivers for the stock in 2H15. On a more positive note, Alcoa reported year-on-year revenue growth for Q2 in its automotive and aerospace end markets, at 54 percent and 24 percent, respectively. For 3Q15, the analyst believes that the Street EPS expectations could be too high, putting pressure on the stock. The management has modestly lowered its aerospace guidance for 2015, while raising the guidance for 2016-2017. The analyst expects the company to report combined $0.01 per share earnings growth, quarter-on-quarter, for its Global Rolled Products and Engineering Products segments. "In upstream, productivity and volume improvements in 3Q more than offset energy and cost increases for a net positive impact of $0.02/share on earnings," Misra stated. Given that all-in aluminum prices are currently at a six-year low, the analyst expects upstream performance to be close to a trough at the current prices. This is likely to shift investor focus to the downstream portfolio, which accounts for higher-multiple earnings. "The portfolio will be boosted by recent acquisitions related to aerospace products and new capacity investments in the automotive end market. We are forecasting $6-7 bn in aerospace revenues for 2017," the Morgan Stanley report added.