Earnings and earnings-based valuations of Alcoa are highly sensitive to alumina/um price assumptions. Our target price of $42/sh is based on applying a ~5.0x multiple to our mid-cycle EBITDA estimate of US$1.9bn, adjusted for net debt, pension and investments.  

Risks include: 

• Aluminum & Alumina Prices – The markets Alcoa competes in are highly cyclical and capital intensive. If the prices of alumina or aluminum were to fall, Alcoa would see a significant impact to earning.

• China – The global aluminum market remains oversupplied by China and highly dependent on China government policy.

• Raw Materials – Rising/lowered costs of raw materials (including energy) could negatively/positively impact Alcoa's profitability.

• Political & Country Risk – Alcoa is global with operations in the US, Australia, Brazil, Canada, Europe, Guinea, and Saudi Arabia.

If the impact on the company from any of these factors proves to be greater/less than we anticipate, we believe the stock will likely have difficulty achieving our target price or could outperform it.