Shares of Alcoa (NYSE: AA) jumped 2.7 percent Thursday after the acquisition of Firth Rixon was announced.
The $2.85 billion acquisition will enable Alcoa to significantly increase its exposure to the aerospace industry.
Sterne Agee likes the acquisition, increasing its earnings estimates and target price.
The note starts by stating, “We believe Alcoa's ~$5 billion aerospace exposure provides the next leg, with the Firth acquisition only accentuating this opportunity. Therefore, by incorporating Firth as well as an improving aerospace outlook we are raising our price target to $18 from $15, and reiterate a Buy rating.”
Regarding the cost of the acquisition, Sterne Agee does not think Alcoa overpaid. A key reason is that Alcoa has many aerospace projects under development that will be accelerated by the inclusion of Firth Rixon.
The price target increase from $15 to $18 is based 19 times 2016 projected earnings and eight times EV/EBITDA.
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