A Tariff Winner: Century Aluminum Upgraded By Cowen On 'Positive Outlook'

Century Aluminum Co CENX raised its EBITDA projections after President Donald Trump announced tariffs on imported steel and aluminum, but a Cowen analyst said the projections could be "conservative" in a Tuesday upgrade note.

The Analyst

Cowen analyst Navid Rassouli upgraded shares of Century Aluminum from Market Perform to Outperform and lifted the price target from $23 to $30.

The Thesis

The tariffs announced by Trump after a Section 232 investigation by the Department of Commerce allow Century Aluminum to restart significant U.S. production capacity, with the company bringing 150,000 metric tons of idled capacity online in Hawesville, Kentucky, Rassouli said in a Tuesday note.  

Cowen projects the restart will provide a 20-percent increase in shipments and 33-percent EBITDA growth relative to the company's previous 2018 guidance of 745,000 metric tons and $300 million, respectively.

Century Aluminum targets an annual EBITDA run rate of about $375 million to $400 million, with the restart contributing $75 million to $100 million of incremental EBITDA when all three potlines are fully ramped by the second half of 2019, Rassouli said. The estimate is conservative given the potential for the Midwest premium to rise above 20 cents in the near term, he said. 

Cowen estimates the unlocking of spare capacity will drive Century Aluminum's 2019 EBITDA 40 percent higher.

Even with the NAFTA exemption, Cowen sees volume upside for the U.S. primary market.

"The 10-percent aluminum tariffs from Section 232, rising all-in prices and falling alumina prices are the three key drivers for our positive outlook for shares," Rassouli said. 

The Price Action

Century Aluminum shares are up about 80 percent over the past year.

At the time of publication, the stock was soaring 4.47 percent to $21.73.

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