NEW YORK (TheStreet) -- After stellar gains since the middle of last week, aluminum producers are reversing direction, taking off significant share value over Friday's trading session.
By late morning, micro-cap Noranda Aluminum Holding (NOR - Get Report) had suffered the most, unloading 7.1% to $3.27, while industry leader Alcoa (AA - Get Report) dropped 3.7% to $11.62. Century Aluminum (CENX - Get Report) fell 5.4% to $11.61, while Alumina Limited (AWC) tumbled 3.1% to $4.35. Constellium (CSTM - Get Report) plunged 3.6% to $23.70.
The industry kicked off a rally earlier in the month, after Alcoa said during its earnings report that it anticipates global aluminum demand increasing 7% over the year, fueled by the aerospace, automotive and construction industries.
Last week, JPMorgan upgraded its rating on Alcoa to "overweight" from "neutral" and raised its price target to $15 to reflect tightening aluminum markets and rising regional aluminum premiums on earnings.
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"Given the pace and amount at which premiums have recently increased, it is clearly difficult to forecast for how long they will remain near current levels which we believe provide a significant amount of earnings support to the company's primary aluminum smelting operations," wrote JPMorgan analyst Michael F. Gambardella in the report.
The firm increased its 2014 earnings estimates to 78 cents a share from 40 cents a share and fiscal 2015 earnings to 68 cents a share from 55 cents a share. Analysts surveyed by Thomson Reuters anticipate net income of 32 cents a share in fiscal 2014 and 58 cents a share in fiscal 2015.
Alcoa has had a tumultuous year so far, plunging on Jan. 10 after missing expectations on fourth-quarter and full-year earnings. The aluminum producer reported net income of 4 cents a share, excluding special items, two cents short of forecasts. The company generated sales of $5.6 billion, higher than the $5.34 billion consensus. Increased revenue came in spite of aluminum prices dropping 7% year-over-year.
Full-year earnings of 33 cents a share missed analysts' expectations by a penny but still beat earnings a year earlier by 36%. Revenue of $23 billion was higher than the estimated $22.88 billion analysts forecast. Over the year, the Pittsburgh-based producer realized $1.1 billion in year-over-year productivity gains.
TheStreet Ratings team rates NORANDA ALUMINUM HOLDING CP as a Hold with a ratings score of C-. The team has this to say about their recommendation:
"We rate NORANDA ALUMINUM HOLDING CP (NOR) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth and good cash flow from operations. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and generally higher debt management risk."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Despite its growing revenue, the company underperformed as compared with the industry average of 3.9%. Since the same quarter one year prior, revenues slightly increased by 0.9%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Net operating cash flow has significantly increased by 480.00% to $26.10 million when compared to the same quarter last year. In addition, NORANDA ALUMINUM HOLDING CP has also vastly surpassed the industry average cash flow growth rate of -4.49%.
- Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 48.31%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 640.00% compared to the year-earlier quarter. Naturally, the overall market trend is bound to be a significant factor. However, in one sense, the stock's sharp decline last year is a positive for future investors, making it cheaper (in proportion to its earnings over the past year) than most other stocks in its industry. But due to other concerns, we feel the stock is still not a good buy right now.
- Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Metals & Mining industry and the overall market, NORANDA ALUMINUM HOLDING CP's return on equity significantly trails that of both the industry average and the S&P 500.
- The gross profit margin for NORANDA ALUMINUM HOLDING CP is currently extremely low, coming in at 9.09%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -5.35% is significantly below that of the industry average.
- You can view the full analysis from the report here: NOR Ratings Report