Alcoa shines even without Alcan

Desjardins Securities is pretty confident about the aluminum market outlook to harden its target price on Alcoa Inc. to $53.40 (U.S.) from $44.50, increasing its price-earnings multiple to 12 times estimated profit in 2008 of $4.45 a share, up from 10 times.That’s a nice premium above Thursday’s NYSE close of $40.34.

“If Alcoa fails to acquire Alcan Inc., it will be perceived as a takeover target and the last major aluminum company that can be purchased,” writes analyst John Redstone. But if it prevails, the transaction will be “immediately earnings accretive with additional upside on the stock.”

Alcan, the hunted, has traded as high as $87.82 on the NYSE this year, compared against what Mr. Redstone figures is the company’s replacement value of $76.30 a share. By comparison, he estimates Alcoa’s replacement value at roughly $51.80 a share.

And forgetting merger mania for a second, he is forecasting improvement for the aluminum market through 2008, with prices averaging $1.30 a pound in 2007, climbing to $1.50 in 2008. Moreover, demand will continue to outstrip supply next year, with inventories falling to 2.6 weeks of consumption by the end of 2008, compared with four weeks now.