Century Aluminum Upgraded: BMO Analyst Says Tariffs Will Push Volumes, Premiums Higher
The White House's steel and aluminum tariffs will lead to higher Midwest premiums for Century Aluminum Co (NASDAQ: CENX), according to BMO Capital Markets.
The Analyst
BMO analyst David Gagliano upgraded shares of Century Aluminum from Market Perform to Outperform and increased the price target from $20 to $28.
The Thesis
Century Aluminum shares do not reflect the valuation implications of higher company-specific volumes and BMO's views of higher-for-longer Midwest premiums, Gagliano said in a Sunday note. (See the analyst's track record here.)
The analyst estimates a "clearing Midwest premium" of about 20 cents per pound versus the spot price of 17 cents and historical price of 8 cents.
Assuming flat LME aluminum and alumina prices, BMO projects annual EBITDA of over $450 million once volumes and premiums reset.
The incremental EBITDA opportunity from the higher Midwest premium is $50 million to $60 million, Gagliano said. Ramping at Century's Hawesville, Kentucky facility added higher value-added aluminum products and another $20 million to $30 million to EBITDA over time, Gagliano said.
The analyst cautioned that EBITDA will most likely be lowered in the near term due to upfront Hawesville start-up costs, with no volume benefits.
The Price Action
Century Aluminum shares are up about 68 percent over the past year.
The stock was surging 4.62 percent to $21.08 at the time of publication Monday.
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Latest Ratings for CENX
Date | Firm | Action | From | To |
---|---|---|---|---|
Nov 2021 | Wolfe Research | Initiates Coverage On | Outperform | |
Jul 2021 | B. Riley Securities | Upgrades | Neutral | Buy |
Jun 2020 | BMO Capital | Downgrades | Outperform | Market Perform |
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