However, despite this strong performance over the past year, J.P. Morgan analysts Michael Gambardella and Tyler Langton downgraded both aluminum giants. Alcoa was downgraded to Neutral from Overweight and its price target was lowered to $18.50 from $20.00. Century Aluminum was downgraded to Underweight from Neutral and its price target was lowered to $17.50 from $20.00.
Alcoa was downgraded due to concerns from deteriorating fundamentals in aluminum. At the same time, aluminum premiums are expected to fall, similar to what has been seen in Europe. Alcoa’s efforts over the past few years have helped to reduce its costs in its upstream as well as growing its downstream. However, the brokerage firm thinks this may or may not be enough to combat the downside risk to the stock.
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Century Aluminum lost its mediocre Neutral rating due to lower projections for London Metal Exchange (LME) aluminum prices. However, it had recently been downgraded as J.P. Morgan reduced its 2015 and 2016 earnings per share (EPS) estimates. The brokerage firm believes that downside risk has increased as regional premiums have come under pressure. Just last week we saw that Century Aluminum was started with a Buy rating at Nomura, and it was given a $28 price target.
J.P. Morgan’s downgrades on Monday may seem to clash at least marginally with what Alcoa reported with its earnings report almost a month ago. We went back to Chairman and CEO Klaus Kleinfeld’s comments at that time. He said:
Our strong fourth quarter capped a pivotal year as we significantly accelerated Alcoa’s transformation. As we built out our value-add businesses, we gained profitable share across exciting downstream growth markets and captured aerospace and automotive growth in the midstream. On the commodity side, our hard work reshaping the portfolio continues to pay off with improved performance for the 13th quarter in a row. In 2014 we delivered Alcoa’s strongest operating results since 2008; we enter 2015 on solid footing, poised to continue transforming and growing.
Alcoa shares closed down 5.6% at $15.64. The stock has a consensus analyst price target of $19.10 and a 52-week trading range of $10.83 to $17.75. Its shares had recovered the post-earnings losses up to Friday’s close, but that has now passed.
Shares of Century Aluminum closed down 9% at $23.00. The consensus analyst price target is $30.00, and the 52-week trading range is $10.82 to $31.75.
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