NEW YORK (TheStreet) -- Even though aluminum prices have strengthened sharply since 2009, Alcoa (AA) has been unable to take full advantage, according to an analyst at Deutsche Bank, which downgraded shares of the aluminum smelter and recycler ahead of the company's first-quarter earnings report next week.
Jorge Beristain, the firm's metals and mining analyst, cut his rating on Alcoa shares to hold from buy and his price target to $18 from $25. He also trimmed his 2010 per-share earnings forecast to 64 cents from $1.02. The consensus among Wall Street analysts for Alcoa's 2010 profit stands at 83 cents a share, according to a survey of the sell side by Thomson Reuters.
Beristain isolated a set of "execution headwinds" facing Alcoa in the near term. For one thing, higher energy costs will pressure the company's results, along with the accounting impact of rising aluminum prices on the cost of goods sold.
The analyst noted that several smelters in Italy, which Alcoa had taken a charge to idle last quarter, still haven't been turned off. Thus, the company has yet to see the full benefit from shutting down an unprofitable operation.Beristain also said Alcoa has likely experienced a decline in sales volumes as it continues to negotiate contracts with two huge aluminum customers -- PepsiCo (PEP) and Anheuser Busch-Inbev (BUD). The supply contracts, which had ten-year terms, lapsed in 2009. For the just-ended first quarter, which Alcoa is scheduled to report after the closing bell on April 12, Beristain expects the company to report earnings of 10 cents a share. That would represent a disappointment. Analysts, on average, are expecting Alcoa to earn 15 cents a share in the quarter. In an interview with TheStreet Monday morning, Beristain said that Wall Street's consensus earnings targets for the next 12 months may consequently need to be revised lower. Beristain emphasized that the Alcoa downgrade Monday was a "company specific" call. Deutsche Bank's house view on aluminum itself, and on commodities in general, remains unchanged, he said. The firm, of which Alcoa is an investment-banking client, expects the price of aluminum to tread water at around $1 a pound for the rest of 2010. Monday morning, Alcoa shares were trading flat with the previous session's close at $14.70 on volume of about 13 million shares. Daily turnover in the stock averages 40.8 million shares. -- Written by Scott Eden in New York Follow TheStreet.com on Twitter and become a fan on Facebook.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV