NEW YORK (TheStreet) -- Alcoa's (AA) - Get Report stock has seen greater declines so far this year than other major aluminum producers. And it's expected to continue to perform worse than other metals stocks for the rest of 2010.
Its shares are down 30.2% year to date, while
have fallen only 13.9%,
are down 20.4% and
have shed 28.0%.
, "I've given up on Alcoa. I'd go with
, where costs are also going down. I will not recommend Alcoa."
Earlier this month, analysts at JPMorgan lowered their 2010 EPS estimates for Alcoa to 53 cents from 80 cents and their price target to $15.50 from $16.50, based on waning aluminum prices and increasing caustic soda costs.
Over the past month, aluminum spot prices on the London Metal Exchange (LME) dipped 13.1% to the current $1,983 per ton. The metal's price will likely deteriorate further on the inventory build in China, the world's dominant producer and consumer.
Aluminum inventory levels at the Shanghai Futures Exchange (SHFE) as reported on May 20 had zoomed 64.4% to 489,495 tons from the 297,722 tons reported on January 7. Meanwhile, China's imports for April were only 28,987 tons, compared to 362,400 tons during the prior year.
Domestic aluminum production in China increased 53.7% to 5.44 million tons during the first four months of 2010, compared with 3.54 million tons last year. The prospects for Alcoa are bleak, primarily because Chinese producers are operating at low utilization rates as they still have to use new smelters. The replacement of inefficient smelters with more efficient ones will likely facilitate an increase in aluminum production at lower costs.
Caustic soda prices, which account for around 11% of alumina refining costs, have increased on the back of firming demand, according to analysts at JPMorgan. Prices reached $350 per ton in April from $245 per ton early this year and are forecast to reach $400 per ton by the end of this year.
Furthermore, Alcoa is in negotiations with labor unions for an agreement on health care and other compensation issues. The union opposes an increase in comprehensive family coverage costs to $315 a month from the current $87. Failure to reach an effective solution may lead to a union strike at 11 plants across the U.S. that account for more than a quarter of Alcoa's smelting capacity, according to
The company slashed dividends in February 2009 from 11 cents a share to the current quarterly payment of 3 cents per share. The stock has a dividend yield of 0.84%, vs. Kaiser's yield of 2.49%.
Alcoa's shares are riskier than those of its peers with smaller market capitalizations. With its market cap of $11.5 billion, Alcoa has a beta of 1.73, compared with Kaiser's 1.57 (market cap of $688 million), Aluminum Corp.'s 1.40 (market cap of $17.7 billion) and Alumina's 1.54 (market cap of $3.2 billion).
Analysts at UBS, JPMorgan and Deutsche Bank downgraded Alcoa last month, following a worse-than-expected first-quarter loss. Currently, the stock has seven buy, nine hold, and two sell ratings, according to
analyst ratings guide.