Alcoa Loss: Downgrade Catalyst
Alcoa's (AA) - Get Alcoa Corporation 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
TheStreet Recommends
Rio Tinto
(RTP) - Get Reinvent Technology Partners Class A Report
, 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 Cerner Corporation Report
and
Kaiser Aluminum
(KALU) - Get Kaiser Aluminum Corporation Report
were up 1.63% and 0.13% to $16.24 and $39.42, respectively, whereas
Aluminum Corp of China
(ACH) - Get Aluminum Corp. of China Ltd. Report
was down 1.75% to $28.08.
