On Monday, the shares of Alcoa Inc. (AA, -1.42%) declined to a 15-month low. This came after Sterne Agee CRT analysts downgraded the aluminium giant.
The downgrade came as a result of concerns regarding valuation as well as a poorer industry outlook.
Josh Sullivan, an analyst at Sterne Agee CRT, lowered his rating from buy to neutral. The buy rating had been in place for over a year.
Added to this, Sullivan also cut his target for Alcoa’s stocks price from $17 to $12.
During midday trading on Monday, Alcoa stocks declined 1.5 percent and this put the company close to its lowest level which it reached on the 3rd of March last year.
In the past 3 months, the shares of Alcoa have declined 9.3% and year to date, these shares have declined by 26 percent. Compare this to the S&P 500 index (SPX) in the same period which has gained 0.7 percent and 3.1%, respectively.
Last year, the aluminum industry boomed and as a result, the shares of the aluminium giant surged 49 percent in 2014, compared with an increase of 11 percent in the SPX. This boost came as a result of curtailments on exports by China, a reduction in the bauxite supply out of Indonesia as well as high premiums.
Sullivan has now said that these trends are reversing. In a note to clients, he wrote that over the last year, Alcoa has made a shift in their generational portfolio in order to curtail “high cost commodity operations while increasing value-added exposure”. While this strategy ensured the longevity of the company, for the intermediate term Alcoa will be faced with many hurdles in order to meet goals in the value added business. This will be more difficult since the company now has less support from their commodity portfolio as they did last year.
Sullivan went on to say that Alcoa has taken all the necessary steps such as the divesting of lower-value assets as well as the reduction of high-cost commodity operations which has created some ‘hurdles’ in the near term. As a result, Alcoa will now how to “aggressively execute on integration” in order to meet its targets for the year.
As a result of all these factors, Sullivan stated that a bullish outlook for Alcoa stocks is no longer warranted. Alcoa is currently trading at $11.76 a share.
MT4 Chart: Alcoa