Alcoa Inc (AA), Century Aluminum Co (CENX), Noranda Aluminum Holding Corporation (NOR): One Aluminum Stock to Buy, Two to Hold

Along these same lines and subsequent to first quarter earnings, Century Aluminum Co (NASDAQ:CENX) announced the acquisition of the Sebree aluminum smelter and a tentative power agreement at its Hawesville smelter, both of which are located in Kentucky. The combined impact of these announcements on Century Aluminum Co (NASDAQ:CENX)’s EBITDA is estimated to be at least $70 million to $90 million, implying that the company’s 2014 EBITDA potential may approach $200 million (based on an aluminum price assumption of $0.93/lb) and a share price approaching $12 based on 5.5 times this potential 2014 EBITDA. A target price of $12 means that the company could see an upside of 40% from current levels!

The third player

Noranda Aluminum Holding Corporation (NYSE:NOR) reported solid first quarter results, driven by continued impressive unit cost performance as it continues its track record of meeting or beating its operating targets. Unfortunately, this solid operating performance is overshadowed by a weakness in underlying aluminum prices that have deteriorated further since the relevant first quarter earnings period.

For Noranda Aluminum Holding Corporation (NYSE:NOR), the negative impact of declining aluminum prices is exacerbated by its net-long alumina position (40% of Noranda Aluminum Holding Corporation (NYSE:NOR)’s external alumina shipments are linked to the aluminum prices of the London Metal Exchange). Also, rising natural gas prices have added to the woes as Noranda Aluminum Holding Corporation (NYSE:NOR) consumes 18 MMBtu of natural gas/year.

My foolish take

Overall, the aluminum industry remains an uninteresting space unless incremental demand increases hit the industry and defeat the current oversupply issues. On a company-to-company basis, however, we do find some interesting stories. Century Aluminum Co (NASDAQ:CENX) is seen as the best stock given its cheaper valuations and cost-reduction strategy, while a neutral stance on Alcoa and Noranda Aluminum Holding Corporation (NYSE:NOR) is predicated on declining aluminum prices balanced by improving end markets.

The article One Aluminum Stock to Buy, Two to Hold originally appeared on Fool.com and is written by Zain Abbas.

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