Here's How Investors Should Play Alcoa Stock Amid Tariff Risks

Alcoa Corporation’s AA investors have been witnessing some short-term gains from the stock of late. Shares of this global leader in aluminum production have gained 9% as U.S. President Trump’s tariffs on all U.S. steel and aluminum imports took effect last week.

The stock has outperformed the industry and S&P 500 composite’s growth of 8.6% and 1.8%, respectively, over the same period. The company has also outpaced other steel and aluminum companies like Olympic Steel, Inc. ZEUS and Constellium SE CSTM, which have gained 5.8% and lost 0.7%, respectively.

AA Stock’s Price Performance

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Closing at $34.84 on Thursday, the stock is trading below its 52-week high of $47.77 but higher than its 52-week low of $27.12.

Is the Tariff a Boon to Alcoa Stock?

Aluminum has become an attractive investment over the past few years with growing popularity for lighter and energy-efficient electric vehicles, recycled aluminum and rechargeable batteries. The metal is witnessing increased demand as industries proceed toward the goal of sustainability and efficiency. Furthermore, a recovery in global air travel has led aircraft manufacturers to ramp up production, spurring demand for aluminum alloys for fuselages and wings.

With the increase in aluminum demand, the tariffs on metals are gaining traction. The U.S. administration recently imposed 25% tariffs on all imported steel and aluminum as a measure to correct trade imbalances and boost the domestic industry. While the move will increase steel and aluminum prices, thereby benefiting domestic producers like Alcoa, it will raise costs for the broader sector especially the automobile and construction companies depending on imported aluminum.

Business Momentum

Alcoa is witnessing solid momentum in the Aluminum segment, with strength in the electrical and packaging markets and recovery in the construction sector. For 2025, the company expects the Aluminum segment to produce 2.3-2.5 million tonnes, while shipments are anticipated to be in the band of 2.6-2.8 million tonnes.

Alcoa’s Alumina segment has been reaping the benefits from higher shipments of alumina and increased smelter production. As part of its Sustana line of products, AA announced its first sales of EcoSource non-metallurgical alumina. Also, its low-carbon EcoLum primary aluminum currently comprises half of its metal sales in Europe. For 2025, alumina production is anticipated to be in the range of 9.5-9.7 million tonnes, while shipments are likely to be 13.1-13.3 million tonnes.

The company has banked on several strategic actions over the past year to boost its organic growth and simplify its business portfolio. This includes the acquisition of Alumina Limited in August 2024, which enhanced its position as one of the world’s largest bauxite and alumina producers. The buyout will likely provide Alcoa with long-term value creation with greater financial and operational flexibility.

Also, in the fourth quarter of 2024, the company made progress with stakeholders to improve the production capacity and long-term outlook of its San Ciprian site.

Stock Valuation

With a forward 12-month price-to-earnings ratio of 8.38X, which is below the industry average of 9.29X, Alcoa stock presents an attractive valuation for investors. Also, the stock is cheaper than its peer, Ryerson Holding Corporation RYI, which is trading at 15.65X.

Price-to-Earnings (Forward 12 Months)

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Few Near-Term Concerns Prevail

Alcoa has been coping with the adverse impacts of high operating costs. In fourth-quarter 2024, the cost of sales soared 11.9% year over year. Selling, general and administrative expenses increased 25% in the quarter. Also, in 2024, its cost of sales increased 2.4% on a year-over-year basis. The increase in operating expenses, if not controlled, might adversely impact the company’s margins in the quarters ahead.

The company’s high debt level also remains concerning. AA exited the fourth quarter with a total debt of $2.6 billion, reflecting an increase of 39% year over year. Considering its high debt level, its cash and cash equivalents of $1.1 billion do not look impressive.

Alcoa’s Earnings Estimate Revision

The company’s earnings estimates for 2025 have decreased 1.6% to $4.20 per share over the past 60 days. Earnings estimates for 2026 have declined 7.8% to $3.18 per share. Find the latest EPS estimates and surprises on Zacks Earnings Calendar.

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Should You Invest in AA Right Now?

Despite Alcoa’s several upsides and attractive valuation, the near-term challenges such as high debt level and tepid earnings estimates are limiting this Zacks Rank #3 (Hold) company’s near-term prospects. While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains and provide a better entry point.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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