Alcoa (AA) Stock Declines After Nomura Downgrade

Alcoa (AA) stock is falling in pre-market trading after it was downgraded to 'neutral' from 'buy' at Nomura.
By Amanda Gomez ,

NEW YORK (TheStreet) -- Alcoa (AA) - Get Report stock is down 1.15% to $8.99 in pre-market trading on Monday after it was downgraded to "neutral" from "buy" at Nomura.

The firm also lowered its price target to $8 from $14 due to an oversupply in the aluminum and alumina markets that is expected to persist over the next two years.

The continued oversupply will limit the valuation boost that could result from the planned split of Alcoa, Nomura said in an analyst note.

In September, the steelmaker announced it will split its bauxite, alumina, aluminum, casting and energy businesses from its rolled and engineered products, and transportation and construction units next year.

Additionally, Alcoa's partnership to supply aluminum to Ford (F) for F-Series pick-up trucks may not be as beneficial to near-term earnings as expected.

Selling to the auto industry will establish the company's relationship with automakers, but will not be a "major profit opportunity," analysts added.

Separately, TheStreet Ratings team rates ALCOA INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate ALCOA INC (AA) 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 reasonable valuation levels, good cash flow from operations and notable return on equity. However, as a counter to these strengths, we also find weaknesses including poor profit margins and a generally disappointing performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has significantly increased by 68.67% to $420.00 million when compared to the same quarter last year. In addition, ALCOA INC has also vastly surpassed the industry average cash flow growth rate of -55.73%.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Metals & Mining industry and the overall market on the basis of return on equity, ALCOA INC has outperformed in comparison with the industry average, but has underperformed when compared to that of the S&P 500.
  • Despite any intermediate fluctuations, we have only bad news to report on this stock's performance over the last year: it has tumbled by 43.42%, worse than the S&P 500's performance. Consistent with the plunge in the stock price, the company's earnings per share are down 83.33% 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.
  • The gross profit margin for ALCOA INC is rather low; currently it is at 18.19%. It has decreased from the same quarter the previous year.
  • You can view the full analysis from the report here: AA

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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