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Prudential Upgrades Alcoa to 'Buy'

Prudential upgraded Alcoa (AA) to buy.

Analyst John Tumazos says the company's Jan. 4 announcement of $750 million to $1 billion in asset sales to divest $1.3 billion in revenue signifies that corporate size is not a target; that management sees the benefits of a stronger balance sheet, and that large acquisition risks have diminished. Tumazos notes aluminum markets no longer appear to be deteriorating owing to a weaker dollar, Asian demand growth, U.S. demand rebounds, minor operating outages, and some indefinite outages.

Tumazos believes a bottom is past. He says shares have fallen to 15 times his $1.28 2004 earnings per share estimate, suggesting a 30% upside potential to his $26 target. He believes the risk-reward ratio has improved.

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