J.P. Morgan downgrades alcoa on deteriorating fundamentals
Alcoa Inc. was downgraded to neutral from overweight by J.P. Morgan on deteriorating fundamentals in the aluminum market.
Analyst Michael Gambardella also cut his price target on the stock to US$18.50 from US$20 in anticipation that U.S. premiums paid on top of the LME benchmark will soon follow the recent downward move in Europe.
“While Alcoa’s e ff or t s over the past several years to reduce its costs in the upstream and grow its downstream should help to offset some of these pressures, we think a Neutral rating is warranted given the downside risk to [the] stock given just how much aluminum premiums have increased over the past several years,” he told clients.
U.S. premiums are up more than 200% compared to levels at the start of 2012.
Mr. Gambardella highlighted increased exports from Russia and the Middle East, as well as higher aluminum product exports from China as reasons for the looser market.
He also cited soft demand and a continued draw in LME inventories.
As a result, J.P. Morgan believes North America premium levels could begin to moderate and even fall in the coming months.
Its 2015 estimated earnings per share for Alcoa were cut to US$1.16 from US$1.29, and its 2016 forecast moves to US$1.59 from US$1.74.