Century Aluminum (CENX): Is the Market Overlooking Structural Tailwinds Amid Valuation Discrepancies?

The stock of Century Aluminum (CENX) has long been a battleground for contrarian investors, with valuation estimates diverging sharply between bullish and bearish camps. A discounted cash flow (DCF) model suggests the company is undervalued by 52.1%, projecting a fair value of $68.99 per share based on anticipated free cash flow recovery by 2027. Conversely, the dominant investor narrative pegs fair value at $27.00, implying current prices are modestly overvalued. This stark divergence raises a critical question: Is the market underestimating the structural tailwinds and catalysts that could redefine Century Aluminum's trajectory?

Structural Tailwinds: A Sector in Transition

The U.S. aluminum industry is undergoing a transformation driven by three key forces: rising global aluminum prices, U.S. production incentives, and supply chain reshoring. Aluminum prices, currently trading near $2,705/MT, remain elevated due to China's shifting role as both a producer and consumer, creating a structural deficit of approximately 4 million tonnes annually in the U.S. market. This deficit, coupled with the Inflation Reduction Act's (IRA) incentives for domestic manufacturing, positions Century Aluminum to benefit from a surge in demand for primary aluminum.

A pivotal catalyst is the restart of Century's Mt. Holly smelter in South Carolina, a project central to its long-term growth. In October 2025, the company secured a power agreement with a utility provider, guaranteeing stable energy costs through 2031-a critical hedge against the industry's vulnerability to volatile energy prices. This agreement, combined with the smelter's projected $25 million quarterly EBITDA contribution once operational in Q2 2026, underscores its strategic importance.

Equally significant is Century's proposed new smelter in the U.S., the first primary facility built in the country in 50 years. With $500 million in grant funding secured from the U.S. Department of Energy and potential to create 5,500 construction jobs, the project aligns with broader policy goals to reduce reliance on foreign supply chains. While the 4–6 year timeline introduces execution risk, the long-term payoff could be transformative for the company's capacity and market share.

Contrarian Valuation: Bridging the Gap

The valuation debate hinges on whether investors are discounting these catalysts or overestimating risks. Critics point to Century's recent operational challenges, including a 11–12 month shutdown at the Grundartangi facility in Iceland due to an electrical failure and production disruptions at Jamalco caused by Hurricane Melissa. However, these issues are largely one-off events, with insurance covering the Grundartangi costs and Jamalco operations expected to resume.

The DCF model's $68.99 fair value assumes a recovery in free cash flow by 2027, a timeline that may appear optimistic to skeptics. Yet, Century's Q3 2025 results-despite a $632 million revenue miss-showed sequential improvement, with adjusted EBITDA rising to $101.1 million and net income turning positive at $15 million. The company's Q4 guidance of $170–180 million in adjusted EBITDA, driven by strong LME prices and Midwest premiums, further supports near-term momentum.

Risks and Investor Sentiment

No analysis of Century Aluminum is complete without addressing its vulnerabilities. Energy costs remain a wildcard, as data centers-willing to pay significantly more for electricity than smelters-compete for power resources. Additionally, China's potential to flood the market with low-cost aluminum could dampen U.S. pricing power. Regulatory shifts, such as changes to IRA incentives or trade policies, also pose risks.

Investor sentiment is polarized. Glencore's recent sale of 9 million shares, reducing its stake to 43%, has raised questions about large shareholder commitment. Conversely, some institutional investors have increased holdings, betting on the company's long-term potential. This divergence mirrors the valuation debate, with bearish investors focusing on short-term risks and bullish ones on structural growth.

Conclusion: A Case for Reassessment

The market's current pricing of Century Aluminum appears to reflect a narrow view of its prospects. While the $27.00 fair value estimate assumes a return to historical norms, the company's strategic initiatives-particularly the Mt. Holly restart and new smelter project-suggest a trajectory beyond traditional benchmarks. The U.S. aluminum market's structural deficit and policy tailwinds further amplify the potential for sustained growth.

For contrarian investors, the valuation discrepancy presents an opportunity. If Century Aluminum can execute its restart plans and navigate energy and regulatory risks, the DCF model's $68.99 fair value may prove prescient. However, this requires patience and a willingness to tolerate near-term volatility. In a sector defined by cyclical swings and geopolitical shifts, Century Aluminum's long-term story may yet be undervalued by those fixated on the present.