Updated from 7:52 a.m. EDT

Traders who knocked Alcoa ( AA) down 5% Wednesday following an earnings miss could be missing the forest for the trees, an analyst said.

Alcoa said after the bell Tuesday that first-quarter net income was $355 million, or 41 cents a share, compared with $151 million, or 17 cents a share, last year. Income from continuing operations was $350 million, or 40 cents a share, in the latest quarter, including a gain of $58 million from an asset sale offset by higher costs related to a customer bankruptcy.

Stock research out Wednesday morning put Alcoa's first-quarter operating number at about 37 cents a share, short of the 41 cents a share forecast by analysts. Investors subsequently offered the shares down $1.80 to $34.70.

To some degree, Wednesday's price action reflects the wariness of investors who got burned when the company's fourth-quarter earnings missed estimates. After rising 66% in 2003, the shares have been drifting lower since the company reported first-quarter operating earnings of 27 cents a share, well short of the 33-cent analyst consensus. The shares currently cost about 17 times this year's expected earnings.

Still, Alcoa said first-quarter revenue rose 11% from a year ago to $5.7 billion, its highest quarterly mark in nearly three years, as higher aluminum prices and stronger shipments of engineered and flat-rolled products offset a seasonal decline in consumer packaging and lower third-party alumina sales. The fabricated aluminum shipments were driven by double-digit increases in sales to the commercial vehicle, automotive and aerospace markets.

"Looking forward, we expect that the recent, rapid increase in aluminum prices will have a greater impact in the second quarter and contribute to improved profitability," the company said. "On a year-over-year basis, the alumina, aluminum and flat-rolled products segments all benefited from more robust pricing."

John Hill, an analyst at Smith Barney, said that sharp price increases had not yet been worked into Alcoa's bottom line. According to a note Wednesday: "Upstream businesses were muted, and have yet to deliver 'full power' commodity leverage as price realizations lagged the rapidly-rising aluminum price while energy/labor/forex escalation boosted costs."

Hill concluded that even though the quarter came in weaker than expected, better results are likely during the coming quarters: "Given rising aluminum prices, falling inventories, quickening activity in key market segments, and the fact that Alcoa delivered its strongest revenues in nearly three years, we see the quarterly dynamic as 'delayed, not broken' and believe that the catalysts are intact."

Smith Barney has an investment banking relationship with Alcoa.

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