Currently, Alcoa Inc. (NYSE: AA) is undergoing a transformative restructuring that appears promising over the long term. However the near term is more of a problem. This well-managed blue-chip materials company is facing challenges from slumping commodity prices, the slowdown in China and unfavorable currency translation. As a result, independent research firm Argus decided to give its two cents on Alcoa and where this company stands to go.

Several of these factors Alcoa faces — trends in the dollar, for instance — are out of management’s control. Earnings have been in free fall, and estimates may continue to decline until the planned split-up of the company in the second half of 2016, leading to further share price weakness.

The planned split will create one company focused on commodity aluminum production and another focused on higher-value engineered products, including its automotive and aerospace businesses. The upstream aluminum products company will retain the Alcoa name. The name of the engineered products company has yet to be announced.

Argus points out that the downstream businesses generate roughly 60% of sales and 80% of earnings, and they have consistently exceeded expectations due mainly to strong growth in the aerospace and automotive markets.

Recently, the company reported fourth-quarter revenue of $5.3 billion, down 18%. Alcoa also reported earnings per share (EPS) of $0.04, which fell short of its estimate of $0.09 but topped the consensus forecast of $0.02.

Looking ahead, the price-to-earnings (P/E) ratio on projected 2016 EPS is 15.6, below the market multiple of 16.5. The sector’s debt ratios appear sound, as many in the group have deleveraged over the past three years. Yields of 2.3% are slightly above the market average of about 2.1%.

As a result Argus downgraded Alcoa to a Hold rating and sees the stock fairly valued around $7.

Shares of Alcoa were trading up 3% at $7.35 Thursday morning, with a consensus analyst price target of $10.77 and a 52-week trading range of $6.85 to $17.10.

Alcoa shares have underperformed the S&P 500 over the past quarter, falling 28% compared to a decline of 4% in the index. They have also fallen 54% over the past year, compared to a decline of 5% for the S&P 500.

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