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Here's Why Century Aluminum (CENX) is Worth Buying Right Now

Anindya Barman

Century Aluminum Company CENX stock looks to be an attractive bet now based on its strong earnings outlook, favorable industry fundamentals and compelling prospects for 2019. We are positive on the company’s prospects and believe that the time is right for you to add the stock to portfolio.

Let's delve deeper into the factors that make this Zacks Rank #2 (Buy) stock an attractive investment option at the moment.

Impressive Earnings Surprise History

Century Aluminum has outpaced the Zacks Consensus Estimate in each of the trailing four quarters. In this timeframe, the company has delivered a positive average earnings surprise of 57.3%.

Growth Expectations

Growth prospects for Century Aluminum for 2019 look encouraging. The Zacks Consensus Estimate for earnings for 2019 for the company is currently pegged at 97 cents, reflecting an expected year-over-year growth of a whopping 488.3%.

Revenues for Century Aluminum for 2019 is also projected to rise roughly 18% year over year as the Zacks Consensus Estimate for the year is currently pegged at $2.23 billion.

Attractive Valuation

Valuation looks attractive as Century Aluminum’s shares are currently trading at a level that is lower than the industry average, suggesting that the stock still has upside potential.

Going by the EV/EBITDA (Enterprise Value/ Earnings before Interest, Tax, Depreciation and Amortization) multiple, which is often used to value metals and mining companies, Century Aluminum is currently trading at trailing 12-month EV/EBITDA multiple of 5.1, cheaper compared with the industry average of 7.3.

Healthy Industry Fundamentals

Century Aluminum, in its third-quarter call, stated that downstream demand depicts growth and the trend is likely to continue. It is seeing strength across major end-markets and healthy growth across the United States and Europe. According to the company, global aluminum demand rose 4% year over year in the third quarter. It witnessed roughly 5% year-over-year growth in China, around 3% growth in Europe and roughly 2% growth in North America.

Per the company, primary aluminum inventories across the globe have declined as projections indicate a production deficit of roughly 2 million metric tons in 2018. Century Aluminum also envisions a similar global deficit in 2019 that is expected to lead to continued destocking of inventories and support LME (London Metal Exchange) aluminum prices over the long haul. Delivery and product premiums are also firm in the United States, supported partly by the business-friendly policies taken by the U.S. administration.

The company also believes that it is now witnessing the end-phase of the difficult conditions that have impacted the alumina sector during 2018. It expects the alumina market to be well supplied and prices to return to historical norms, considering the resolution of these issues.

Expansion Moves to Boost Production

Century Aluminum, in late 2018, announced two new expansion programs at the Sebree smelter. The move will boost the smelter’s production of value-added and secondary aluminum.

The expansions are expected to be complete in the first quarter of 2019. It will improve the smelter’s product mix by adding around 90,000 metric tons (MT) of additional billet to the Sebree casthouse. This will boost the smelter’s overall output by adding 20,000 MT of additional secondary or scrap reprocessing capacity. The company expects Sebree to produce roughly 230,000 MT of aluminum (primary and secondary) products in 2019. This includes around 175,000 MT of billet.

The expansion programs indicate the company’s confidence in the future of the U.S. aluminum industry along with the consistent positive impacts of the Trump administration’s Section 232 program.

Century Aluminum Company Price and Consensus

 

Century Aluminum Company Price and Consensus | Century Aluminum Company Quote

Other Stocks to Consider

Other top-ranked stocks worth considering in the basic materials space include Quaker Chemical Corporation KWR, Israel Chemicals Ltd. ICL and Cameco Corporation CCJ.

Quaker Chemical has an expected earnings growth rate of 21.1% for the current year and carries a Zacks Rank #1 (Strong Buy). Its shares have gained 18% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Israel Chemicals has an expected earnings growth rate of 2.7% for the current year and carries a Zacks Rank #2. The company’s shares have rallied 39% over the past year.

Cameco has an expected earnings growth rate of 20% for the current year and carries a Zacks Rank #2. The company’s shares have gained 16% in the past year.
 
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