Tags: Alcoa | Shares | Analysts | Outlook

Alcoa Shares Jump but Analysts Skeptical on Outlook

Tuesday, 10 January 2012 12:02 PM

Alcoa Inc. shares rose on Tuesday after the aluminum producer gave a bullish outlook for the industry, but some Wall Street analysts were skeptical and lowered the company's stock price target.

In late morning trading on the New York Stock Exchange, Alcoa was up 1.4 percent at $9.56, after opening more than 4 percent higher.

On Monday, Alcoa reported a fourth-quarter loss, citing slumping aluminum prices and announced smelting capacity cuts that it believes will prompt a global deficit and push up metal prices. It also forecast 7 percent growth in global aluminum demand this year, especially in the aerospace and automotive markets.

But Tony Rizzuto, of Dahlman Rose & Co., cut the company's share price target to $14.65 from $17.50, saying he was not convinced that aluminum prices would rise this year.

"Until the market sees sustained production discipline, we do not believe aluminum prices will move meaningfully higher," he said.

RBC also lowered its price target for Alcoa, to $11.00 from $11.50 and Barclays Capital dropped it to $11 from $13. But UBS raised its target price to $10.25 from $9.50.

Barclays' David Gagliano was skeptical that Alcoa would turn things around this year.

"Alcoa continues to face headwinds in the form of soft aluminum prices, extraneous cost pressures, and more downward estimate revisions," he wrote in a research note.

"These will offset additional internal cost savings targets and the slow improvement in underlying aluminum fundamentals we see during 2012. "

Fraser Phillips of RBC Capital Markets said prospects for Alcoa's shares depend on the outlook for the aluminum market.

"We expect prices to remain under downward pressure as long as global leading indicators are declining," he wrote.

"Over the longer term, our analysis suggests that the aluminum market will continue to suffer from significant excess inventory and capacity and we expect aluminum prices to be constrained as a result.

"At the same time, we expect rising costs will put downward pressure on margins. We therefore see limited upside potential for the share price over the next 12 months,' wrote Phillips.

Alcoa stock is still way off its 52-week high of $18.47 last April. However, bears lightened their positions in the stock during 2011, with only about 2 percent held by "short" sellers ahead of the earnings, well below the 6 percent short interest in the first quarter last year, according to Data Explorers.

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Tuesday, 10 January 2012 12:02 PM
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