Friday, April 9, 2010

J.P. Morgan (NYSE:JPM) Downgrades Alcoa (NYSE:AA)

Aluminum Prices and Alcoa

JPMorgan (NYSE:JPM) analyst Michael F. Gambardella, downgraded Alcoa (NYSE:AA) from "Overweight" to "Neutral," saying even though the company has done a good job at cutting costs, the low price of aluminum at this time will keep them from generating good profits.

In a note to clients, Gambardella said, "Although Alcoa has taken significant costs out of its business by closing high-cost operations and through additional procurement and productivity savings, we think it will still struggle to generate attractive returns."

The stronger price of competitive metals will probably drive investors to other metals' firms until aluminum prices rebound. Many of the other metals have been stronger in price recently.

First quarter estimates were lowered in a big way by Gambardella, dropping them to 4 cents a share from 18 cents a share. Other analysts have been looking for about 11 cents a share for the quarter, and annual earnings for 2010 to reach 77 cents a share.

Gambardella has dropped his annual estimate to 74 cents a share from an ambitious $1.10 before.

It seems Gambardella is adjusting his higher estimates because of how far off he was going to be in contrast to others.

As far as Alcoa goes, they will perform in unison with how aluminum performs. Other then flushing some of the costs out of the business, there isn't much else they can do until that changes.

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