Things are looking up for Alcoa (AA), and with a Trefis price estimate over 60% ahead of the current stock price of about $9, the company may be on the brink of breaking out of a slump that began six months ago.

At that time, the stock was trading above $16 a share. Of course, Alcoa wasn't alone. The industry as a whole, including Freeport McMoRan Copper (FCX) and Brazilian firm Vale (VALE), took it on the chin around that same time.

See full Trefis analysis for Alcoa here

In what may be indicative of improving market conditions, Alcoa has requested a five-year extension to expand its Western Australia Wagerup refinery operations. The environmental approval has expired, and Alcoa thinks the time is right to re-focus its efforts. This comes on the heels of AA's 2008 suspended expansion efforts for this same refinery -- a bullish sign from Alcoa management.

New agreements may help Alcoa rise

Alcoa and Embraer SA (ERJ), the leading airline manufacturer in Brazil, recently announced an agreement whereby AA provides aluminum alloys, design and fastener expertise as Embraer develops high-performance fuselage and wings for their entire line of aircraft. Embraer is the leading manufacturer of smaller aircraft up to 120 seats and a major Brazilian exporter.

Neither Alcoa nor Embraer management speculated on the impact of the joint venture, but it is yet another sign AA is heading in the right direction in spite of the global economic environment. This is particularly true as AA projects the aerospace industry will be one of the leading buyers of aluminum (along with the automotive industry) into 2012 and beyond.

Cautious optimism is warranted

As Alcoa investors know, the company will always be subject to pressure from energy prices, a huge expense item. However, cost-cutting measures and the recent agreements are positive signs and should impact several key divisions. According to Trefis estimates, engineered products alone make up nearly 22% of Alcoa's stock price, with alumina only slightly behind at 20.6%. Both of these divisions will be impacted by the recent Embraer partnership. And if management is right, the aerospace industry should continue to provide opportunities for growth.

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