Tuesday, April 13, 2010

Just a Reminder: JP Morgan Downgraded Alcoa Last Week (AA)

UPDATE: "Analysts on Alcoa: Five Takeaways on The First Earnings Salvo" (AA)"
Original post:
The stock is down 1.24%, giving up yesterday's gain, at $14.39.
A followup to last night's "Alcoa Starts Earnings Season Off With Confusion" (AA)" from one of our favorite sites, Notable Calls:
Friday April 9, 2010
J.P. Morgan downgrades Alcoa (NYSE:AA) to Neutral from Overweight and is removing the stock from their Focus List. Firm's new target is $16.50 (prev. $21.50).

Firm notes their downgrade reflects their new 2011E EPS of $0.48 (which is based on their metal strategist's aluminum price forecast of $0.92/lb) and lower December 2010 price target of $16.50.

Although Alcoa has taken significant costs out of its business by closing high cost operations and through additional procurement and productivity savings, they think it will still struggle to generate attractive returns at JPM's strategist’s
2011 aluminum price forecast of $0.92/lb. While LME aluminum currently sits at $1.04/lb today and the average price for the forward curve in 2011 is roughly $1.11/lb, the firm believes likely weak 1Q results and relatively poor fundamentals for the aluminum market as compared to other metals will encourage investors to gravitate towards companies that have more earnings leverage to their respective metal prices.

Lowering 2010E EPS as headwinds offset rising aluminum prices. JPM is lowering their 1Q10E EPS to $0.04 from $0.18 and 2010E EPS to $0.74 from $1.10. 1Q results should benefit from rising aluminum prices...MORE
...Notablecalls: With J.P. Morgan's Metals team lowering Alcoa estimates just ahead of their earnings release, I think the call warrants attention. Also, their FY11 EPS estimate of $0.48 is now the Street low.

I thought Deutsche's FY011 EPS ests (lowered last week) were as low as they would go here but looks like JPM had other plans.

JPM upgraded Alcoa back in March 2009, so their clients are sitting on sizable gains.

I think AA will get hit on this downgrade. It's a slow mover & the general tape is strong, so you should be able to get decent fills starting from early on.

$14.50? and if that breaks, another 10-20c lower?