Alcoa (AA, $20.83) shares get bumped up to outperform by Credit Suisse, on restructuring plans and expected profit boost

Shares of Alcoa climbed around +6% Wednesday, following a rating upgrade by Credit Suisse.

Analysts at Credit Suisse raised their rating on the aluminum products and wrap maker’s stock to outperform from neutral. They also hiked their price target on the shares to $27 from $26.

Credit Suisse analyst Curt Woodworth indicated that he expects alumina prices to bounce back on "significant" capacity cuts in China, the ending of inventory destocking, and the reported shutdown of the Alpart plant by Chinese Jiuquan Iron & Steel.

Woodworth also believes that raw material inputs for alumina, like caustic soda, energy, and calcined coke are declining in price and therefore boosting profit margin for Alcoa.

Woodworth also mentioned that Alcoa's restructuring efforts should result in  significant tailwinds to its mid-cycle free cash flow starting early 2020. On Monday, Alcoa announced its restructuring plan that will eliminate at least one of its units, consolidate sales and lower costs, and downsize its executive team to seven department heads from 12 that report to the CEO. Woodworth predicts that Alcoa’s restructuring will lead to potential savings of $60-80 million, and he expects the company to quantify the impact this quarter.

Alcoa shares appear "significantly undervalued on most metrics" , Woodworth noted.