Was Alcoa a Victim of the Market or Profit Taking?

Alcoa reported its third quarter results with adjusted earnings per share of $0.31 and revenue of $6.2 billion. That $0.31  and adjusted EPS of $0.31, which excludes $0.19 in special items. Alcoa’s third quarter sales and adjusted earnings were above consensus estimates of $5.6 billion in revenue and $0.22 in earnings per share.

Sterne Agee maintained its Buy rating, and maintained its $18 price target and raised earnings estimates. The firm’s John Sullivan said that Alcoa had a strong tailwind heading into the third quarter, and that the leverage Alcoa is achieving from right-sizing its cost structure is exceeding expectations. Selective margin performance in aerospace  and elsewhere allowed it to beat earnings handily. Sullivan said, “we would continue to be constructive as Alcoa executes across all three business segments with secular trends in aerospace, automotive, and commodities providing tailwinds.”

It was just on September 30 that Alcoa was raised to Buy from Neutral and the price target was raised to $18 from $16 at Bank of America Merrill Lynch. On September 25 the aluminum giant’s shares were maintained as Buy but the stock’s price target was raised to $20 from $17 at Stifel.

Alcoa’s shares have whipped around handily ahead of earnings. That makes it a stock that was likely to see profit taking. The sell-off will have only exaggerated that profit taking. Alcoa shares were up 3% in the last quarter or so, but the stock was up 100% or so over the course of the last year. Maybe being booted out of the DJIA was the best thing that could have happened to it.

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Alcoa did open up on Thursday morning at $16.35 after closing at $16.08 on Wednesday ahead of earnings. Shares went into the red by about 10:00 a.m. and the shares listed lower before bottoming out around 12:30 p.m. at $15.17. With about 30 minutes to the close, Alcoa shares were down 4.6% at $15.33 on a whopping 44 million shares.

Profit taking might have been expected, but this seems grossly exaggerated by market forces. Drops of 300 points in the DJIA will tend to do that.