The market for aluminum had been pressured until recently. We have seen analysts start to warm up to the aluminum giants again in 2014, but the change in bias has been slow and behind the curve. Now Bank of America Merrill Lynch has issued key analyst upgrades in Alcoa Inc. (NYSE: AA) and Century Aluminum Co. (NASDAQ: CENX) with big upside targets. 24/7 Wall St. wanted to see what the firm really sees ahead, and if there is even more upside than the official targets and calls may suggest. The firm is more bullish than the consensus price targets would suggest.

Merrill Lynch upgraded Alcoa shares to Buy, citing a better cash outlook and improved aluminum fundamentals. Aluminum is looking more favorable, and Alcoa shares have the potential to soar higher if positive contagion chatter increases as the F-150 rolls out with more aluminum content. Pension costs associated with the closing of high-cost operations are expected to fall nearly $100 million year over year.

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Merrill Lynch issued an $18 price target on Alcoa. However, if Midwest premiums remain steady, the price target could move as high as $21. The firm has estimates of $1.05 in earnings per share for fiscal year 2015. Thomson Reuters has an estimate of $0.88 in earnings per share. Alcoa has a consensus price target of $16.56 for its stock and a 52-week trading range of $7.82 to $17.36. Its market cap is $18 billion.

Merrill Lynch upgraded Century Aluminum to Buy from Neutral and raised the price target to $30 from the previous level of $21. This is based on a more positive stance on global aluminum markets due to an attractive entry point created by a recent retreat in stock. The firm expects earnings to be revised up near term on mark-to-market aluminum price recovery.

Midwest premium forecasts for a new estimate of $2.50 in earnings per share for the fiscal year 2015. Thomson Reuters has an estimate of $2.18 in earnings per share for fiscal 2015. Other compelling catalysts that allow for more upside, beyond a better aluminum price and higher Midwest premiums, are as follows: a smelter restart in Ravenswood, further power savings at Mt. Holly smelter and an eventual Helguvik smelter restart. Century Aluminum has a consensus price target of $26.17 for its stock and a 52-week trading range $7.80 to $29.54. Its market cap is $2 billion.

The upgrades were having a positive impact on the shares in early trading on Tuesday. Alcoa shares were up about 1.5% at $16.17 in early trading, while Century Aluminum was up more than 4% to $24.95. We will be keeping an eye on the stock prices for potential updates based on the upgrades.

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