Analysts at Sterne Agee expect Alcoa Inc (NYSE:AA) to deliver $0.06 earnings per share for the first quarter of the current fiscal year. Their estimate shows that the aluminum giant will slightly beat the $0.05 earnings per share consensus estimate of Wall Street analysts.

Alcoa Inc (AA)
Alcoa Inc (AA)

Sterne Agee analysts Josh W. Sullivan and Peter Arment issued a bullish report regarding the future of Alcoa Inc (NYSE:AA) citing three fundamental factors that would drive the stock price of the aluminum giant higher. The analysts have a Buy rating with a $15 price target for the stock.

Three fundamental drivers

In a note to investors, Sullivan and Arment believed the three fundamental themes that could push Alcoa Inc (NYSE:AA) upward include the aerospace delivery cycle, change-over to automotive sheet, and the company’s cost curve improvements in commodity business. The analysts said it has been an eventful first quarter the aluminum giant.

During the quarter, the analysts noted that Alcoa Inc (NYSE:AA) and the rest of the companies in the aluminum industry continued the reduction of smelting capacity to balance supply and demand.

According to Sullivan and Arment, one of the notable shifts in automotive materials happened in January when Ford Motor Company (NYSE:F) announced that it would transition into using aluminum for the body of its 2015 F-150 model. General Motors Company (NYSE:GM) made a similar decision for its light duty trucks.

The analysts also noted that the decision of a court in the United Kingdom against the London Metal Exchange (LME) rule changes prevented a perceived hard landing for warehouse inventories in the latter part of the first quarter this year.

Strong demand in downstream business

Although Sullivan and Arment do not believe the warehousing issue was gone, they believe that a softer landing for aluminum and the industry is possible. According to them, the downstream business (Engineered Products and Solutions) of Alcoa Inc (NYSE:AA) with 52% of sales in aerospace “will benefit from destocking abates and as the long-term delivery cycle engages AA’s world class fastener, investment cast, and forging operations.”

According to them, Alcoa’s downstream business will experience strong demand and will benefit from the ramp up of the A350, 787, and A320NEO over the next three years. Sullivan and Arment expect the aerospace supply chain to re-engage in mid-2014.

In addition, the analysts noted that the midstream business of Alcoa Inc (NYSE:) is leading the North American change-over to automotive aluminum sheet/body-in-white, and they perceived a mostly flat outlook for its upstream segment. However, the Sullivan and Arment suggested the company could benefit from strength in regional domestic pricing.