UBS upgrades Kaiser Aluminum as Q2 EBITDA rises 60% and earnings outlook strengthens

Kaiser Aluminum shares rose 0.3 per cent in Monday's trading after climbing as much as 4 per cent earlier in the session, following an upgrade from UBS to Buy from Neutral. UBS also raised its price target on the aluminium producer to USD 184 from USD 179.

The upgrade came after Kaiser Aluminum's shares had fallen 19 per cent from their August highs, despite what UBS described as a strong second-quarter performance. UBS analyst Alex Stansbury said the decline had created an attractive entry point as the company's earnings power continues to improve.

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Kaiser's second-quarter EBITDA increased 60 per cent year-on-year, rising by USD 41 million. According to UBS, the improvement was supported by stronger pricing, higher volumes and a favourable product mix, while elevated scrap spreads continued to provide an additional tailwind.

UBS also pointed to continued benefits from investments at Kaiser's Warrick and Trentwood operations. The analyst said the end of aerospace inventory destocking and accelerating build rates could provide further support to the company's earnings.

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Kaiser has guided for around 50 per cent upside in EBITDA for the full year 2026, a target UBS considers achievable. The investment bank estimates EBITDA could grow by 66 per cent.

UBS said Kaiser has also demonstrated greater leverage to scrap markets and reduced its debt faster through stronger EBITDA generation since the bank initiated coverage. The shares have meanwhile fallen to around 7.5 times UBS' estimated EV/EBITDA, compared with an average of 8.6 times.

According to Stansbury, investors may be placing too much emphasis on temporary concerns while underestimating Kaiser's stronger underlying earnings base. With improving earnings, continued scrap tailwinds and support from operational investments, UBS sees a more favourable risk-reward outlook for the aluminium producer.