Supply Drives the Narrative: Downgrading AA & Vale to EW; Upgrading IVN to OW

Research evidence excerpt

Supply Drives the Narrative: Downgrading AA & Vale to EW; Upgrading IVN to OW

FoundationMali price translates into meaningfully lower earnings. Our new 2027-28 estimates are

33-49% below sell-side consensus for EBITDA, and 42-64% below for EPS. We

believe consensus figures will be revised lower to better reflect the aluminum

market moving from deficit into surplus, which in our view will weigh on AA's

shares. Our new $53/sh price target implied ~10% upside and is derived using an EV/

EBITDA multiple of 7.0x, which is 0.25x standard devs above the 5-year average.

… and Vale as the challenges around the iron ore market mount with lower global

steel production, driven by China (2% down vs. prior model), resulting in even higher

seaborne iron ore supply surpluses (8-21% up). Our commodities team has cut their

IO price forecasts 2-4% for 2026-28 and is now their least preferred commodity.

Further, the company is facing cost pressures, and we now see iron ore C1 cash costs

at $23/t in 2026 (5% up vs. prior model), above management's guidance of $20-21.5/

t, and $19.5/t (7% up) in 2027. Our new 2Q26/2026 estimates are 9%/7% below

consensus for EBITDA, and 13%/6% below for EPS. Vale's Base Metal business

remains on the right track, but we think this is mostly priced in the stock, which

trades at 4.2x EV/EBITDA and 6.6x P/E on our new 2027 estimates vs. 10-year

averages of 4.1x and 7.0x, respectively. Our new $16.5/sh price target implies ~11%

upside and is derived using a P/E multiple of 7.0x, in line with the 10yr average.

Commodity views (see full report): Our commodities team highlights copper as

their top pick, driven by tightening supply, solid buying activity out of China, and

potential for upside risk around US tariffs. On the flip side, Aluminum is now seen