Despite the downgrade, Alcoa shares are climbing, up 0.24% to $12.57, in after hours trading on Friday.
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Analysts cited a global oversupply of aluminum as a reason for the drop.
"Alcoa ranked as the third largest primary aluminum producer in 2013. Its aluminum production is about average cost and its alumina production is in the low second quartile. The primary aluminum market has been suffering from production surpluses as new low cost capacity was added and high cost capacity was slowly curtailed. This excess supply has been soaked up by financial buyers and held in inventory," Fitch said in the note.
Separately, TheStreet Ratings team rates ALCOA INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate ALCOA INC (AA) a HOLD. The primary factors that have impacted our rating are mixed ? some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. Among the primary strengths of the company is its solid stock price performance. At the same time, however, we also find weaknesses including deteriorating net income, disappointing return on equity and poor profit margins."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to its closing price of one year ago, AA's share price has jumped by 54.05%, exceeding the performance of the broader market during that same time frame. Although AA had significant growth over the past year, our hold rating indicates that we do not recommend additional investment in this stock at the current time.
- AA, with its decline in revenue, underperformed when compared the industry average of 7.8%. Since the same quarter one year prior, revenues slightly dropped by 5.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- ALCOA INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, ALCOA INC swung to a loss, reporting -$2.15 versus $0.17 in the prior year. This year, the market expects an improvement in earnings ($0.36 versus -$2.15).
- The gross profit margin for ALCOA INC is rather low; currently it is at 15.70%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of -41.88% is significantly below that of the industry average.
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Metals & Mining industry. The net income has significantly decreased by 1066.5% when compared to the same quarter one year ago, falling from $242.00 million to -$2,339.00 million.
- You can view the full analysis from the report here: AA Ratings Report