CENX: Recent Tariff Expansions And China Demand Will Shape Aluminum Outlook

Key Takeaways

• Expansion of U.S. production and operational efficiency improvements position the company to benefit from rising demand and favorable market conditions.
  
• Government incentives and strong end-market trends support revenue growth, margin expansion, and enhanced financial flexibility for future initiatives.
  
• Heavy reliance on favorable market conditions, government support, and stable input costs exposes the company to significant operational, regulatory, and competitive risks that threaten profitability.

Catalysts

Produces and sells standard-grade and value-added primary aluminum products in the United States and Iceland.

• The expansion and restart of Mt. Holly, along with progress on a new U.S. smelter, positions Century Aluminum to meaningfully increase U.S. primary aluminum production, capturing rising domestic demand driven by reshoring of supply chains and incentivized by government tariffs and trade protections-supporting future revenue growth and improved fixed cost absorption, thus enhancing net margins.
  
• Expected sustained tightness in global primary aluminum supply (with China near capacity caps and minimal new ex-China projects) should maintain favorable pricing levels and strong Midwest premiums, especially as U.S. demand rebounds from infrastructure and electrification trends, providing a tailwind for top-line growth and improved EBITDA.
  
• The company's investments in operational efficiency-evident in safety initiatives and planned capital improvements, such as the Jamalco steam turbine upgrade-support further margin expansion by lowering energy and operating costs, translating into stronger future earnings.
  
• Continued momentum in end-market demand (especially value-added products like billets for transportation electrification and the growing use of aluminum in clean energy and sustainable packaging) is driving higher premiums and increased shipment volumes, directly benefiting revenue visibility and margin expansion.
  
• Receipt of substantial U.S. manufacturing tax credits (45X credits) tied to domestic production volumes-expected to grow with the Mt. Holly restart and potential new smelter-should significantly enhance future free cash flow and net income, providing financial flexibility for additional growth initiatives.

Century Aluminum Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Century Aluminum's revenue will grow by 7.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 4.6% today to 15.8% in 3 years time.
• Analysts expect earnings to reach $479.3 million (and earnings per share of $3.88) by about September 2028, up from $111.4 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.7x on those 2028 earnings, down from 18.2x today. This future PE is lower than the current PE for the US Metals and Mining industry at 22.5x.
• Analysts expect the number of shares outstanding to grow by 0.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.9%, as per the Simply Wall St company report.

Century Aluminum Future Earnings Per Share Growth

Risks

• Century's financial performance and positive outlook are currently heavily dependent on high U.S. Midwest aluminum premiums and the continued effectiveness of Section 232 tariffs; a future policy change-such as removal or lowering of tariffs-would likely reduce domestic premiums and demand, pressuring both revenues and net margins.
  
• The company's ambitious investment in expanding production capacity at Mt. Holly and planning a new smelter exposes it to significant execution risk, including potential delays or cost overruns, which could materially increase capital expenditures and reduce free cash flow and overall profitability.
  
• Century remains highly exposed to volatility in raw material and energy costs (like alumina, coke, power), with periods of elevated or unpredictable prices capable of sharply increasing operating expenses and compressing EBITDA margins-particularly given the energy-intensive nature of its smelting operations.
  
• Dependence on government incentives and industrial power contracts (e.g., with Santee Cooper at Mt. Holly) introduces uncertainty; changes to these incentives, power availability/cost, or regulatory frameworks could negatively affect long-term cost structures and erode net margins.
  
• Weakening premiums and sluggish demand in the European market, ongoing currency headwinds, and continued global competition from low-cost producers (especially from China and the Middle East) create long-term risks of margin compression and lower revenue growth abroad, making Century's global earnings less predictable.

Valuation

• The analysts have a consensus price target of $27.0 for Century Aluminum based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.0 billion, earnings will come to $479.3 million, and it would be trading on a PE ratio of 6.7x, assuming you use a discount rate of 7.9%.
• Given the current share price of $21.74, the analyst price target of $27.0 is 19.5% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.