Alcoa Loss: Downgrade Catalyst

Alcoa's first-quarter loss prompts at least one downgrade, but analysts already had begun cutting ratings before the earnings report.
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Alcoa's(AA) - Get Report worse-than-expected first-quarter loss is a catalyst for analyst downgrades.

Alcoa, the first of the

Dow Jones Industrial Average's

30 companies to announce earnings, after the bell Monday reported a $201 million first-quarter loss on weaker-than-forecast revenue. Soon after the results were announced, UBS AG cut its stock rating on shares of Alcoa to neutral from buy. The stock hit a low of $14.06, before closing at $14.34, down 1.58% in Tuesday's trade.

But analysts were already lowering their ratings on Alcoa prior to the announcement. On April 9, JPMorgan analyst Michael Gambardella downgraded his rating on Alcoa to neutral from overweight and removed it from the focus list. He also lowered the price target to $16.50 from $21.50.

Early last week, Deutsche Bank analyst Jorge Beristain also downgraded the stock to hold from buy, slashing the price target to $18 from $25. He reckoned that a host of one-time charges would hurt the company's ability to capitalize on higher aluminum prices.

This indeed turned out to be the case, as Alcoa reported restructuring and special charges of $295 million, or 29 cents a share, stemming primarily from the decision to permanently close two smelters in Badin, N.C. and Frederick, Md.

Meanwhile, Alcoa's Melbourne-based joint venture partner

Alumina

(AWC)

noted that stronger Chinese demand is behind the current aluminum price spike.

However, the company warned that costs are on the rise as well. "Costs have been impacted by higher energy prices and a stronger Australian dollar," Chief Executive John Bevan told

Dow Jones

on April 12. Alumina closed down 4.63% at $6.59 on Tuesday.

Nonetheless, Jacynthe Cote, head of the aluminum division of global mining giant

Rio Tinto

(RTP)

, has expressed optimism on the long-term outlook for the aluminum industry. "I believe the aluminum industry has a bright future and ... we anticipate an increase in demand of four to six-percent per year," Cote told

Canadian Press

.

Cote stated that the demand for the metal is bouncing back, but it was premature to accelerate investments that were put on hold amid the global economic slowdown. Other aluminum stocks

Century Aluminum

(CERN) - Get Report

and

Kaiser Aluminum

(KALU) - Get Report

were up 1.63% and 0.13% to $16.24 and $39.42, respectively, whereas

Aluminum Corp of China

(ACH) - Get Report

was down 1.75% to $28.08.