Shares of Alcoa (NYSE: AA) were up approximately 2% in pre-market trading on Thursday, recouping some of the previous session's losses. This followed a report from Morgan Stanley stating the stock's near-10% drop on Wednesday was overdone, with the firm reiterating its buy rating.

On Wednesday, shares of Alcoa plunged 9.47% to close at $65.55. The sell-off was primarily triggered by updated guidance from the company's management. Alcoa had warned of near-term profit pressure in its alumina business and noted reduced alumina shipments from Australia due to cyclone impacts.

Addressing the sharp market reaction, Morgan Stanley noted in its Thursday report that while it has lowered its earnings per share estimates for the second quarter and full-year 2026 for Alcoa to reflect the new guidance, it believes the market's nearly 10% decline was an overreaction. The firm's analysis suggests the updated guidance only impacts its 2026 earnings per share estimate by approximately 2%. Based on this assessment, Morgan Stanley maintained its overweight rating on the stock with a price target of $79.

As a vertically integrated aluminum company, Alcoa's operations span bauxite mining, alumina refining, and primary aluminum production. While the alumina segment faces short-term headwinds, Morgan Stanley argued this does not justify such a significant share price decline. The firm's reaffirmed buy rating indicates confidence in Alcoa's long-term fundamentals and potential for valuation recovery.

Bolstered by Morgan Stanley's positive commentary, shares of Alcoa continued to recover in Thursday's pre-market trading, rising about 1.6% to $66.65 at the time of reporting, indicating some stabilization in market sentiment.