NEW YORK ( TheStreet) -- To say it's been a bad year for Alcoa ( AA) would be a gross understatement.
Not only is the company's stock trading at near 52-week lows due to a brutal aluminum pricing environment, but the aluminum giant -- considered the "lead-off hitter" in each earnings season - was recently downgraded to sell by Deutsche Bank analyst Jorge Beristain, who also lowered his price target to $5.50. Essentially, in the week Alcoa reports its third-quarter earnings results, Beristain believes the company, even at its 52-week low, is overvalued by 30%. To add insult to injury, Alcoa, long a Dow component, was recently booted out of the index. As much as I've always liked this company and still do, I'm not going to make excuses for the company's performance or what Alcoa has become. But I disagree with those who consistently expect Alcoa to somehow manufacture growth out of thin air, especially when global demand for aluminum just isn't there.
While Beristain is justified in reducing his earnings estimates and price outlook for aluminum by 12% to 13% for 2014 and 2015, Alcoa's management has always remained upbeat about the company's prospects, saying recently it expects 7% demand growth in aluminum for this fiscal year. This outlook was 1% better than what the company guided for all of 2012. So, while there is still plenty of doom and gloom out there being spewed among Street analysts, it shouldn't be discounted that the company's recent investments in areas like China have begun to pay meaningful dividends. In fact, management expects China to account for roughly 50% of its projected demand growth. Besides, it's not as if the company's recent results have swayed that drastically from prior guidance or what the Street has expected. Take, for instance, the June quarter. Aloca posted revenue of $5.85 billion, which beat Street estimates of $5.82 billion. Remarkably, the beat arrived even as sales slipped by about 2%. Here, again, soft production shipments had a considerable impact on the company's performance. But even with the perpetual weak prices of aluminum, Alcoa's management continues to make the best of a bad situation. It's true that "looking on the bright side" has been a recurring theme. But even though the Street expects Alcoa to post a 2% decline in revenue on Tuesday, I don't believe the poor aluminum industry is a valid reflection of how well-managed Alcoa really is.