Stay away from Alcoa , JPMorgan said. Analyst Bill Peterson downgraded the stock to neutral from overweight and slashed his price target to $36 from $54 in the runup to its earnings report next week. Peterson’s new price target implies shares could slide 1.9% from where they closed Thursday. “Ahead of 2Q results kicking off next week for Alcoa we update estimates with our revised aluminum price forecast to incorporate weaker near-term fundamentals including planned capacity restarts in China amid muted demand,” he said in a note to clients Friday. Shares dropped 3.8% in Friday premarket trading. The stock has lost more than 19% in 2023. Despite an approximately 90% correlation between Alcoa shares and aluminum prices over the past decade, Alcoa has underperformed the metal by 7% since April. AA YTD mountain Alcoa, year to date Planned smelting capacity restarts in China could pressure global aluminum prices in the coming months, adding to issues of restricted capacity from low rainfall and hydro reserves already seen since last year, he said. And there’s pressure on the supply side as Russian aluminum makes up a growing share despite a preference from many customers to get their metal from a different county. The U.S. Midwest Premium is expected to be worse than previously expected in the fourth quarter given recent weakening in the buyer, Peterson said. Too much supply could also force deep discounts, with Peterson having little confidence demand picks up before 2024. Aluminum prices as a whole should also be cheaper than previously forecasted in both the fourth quarter and 2024, but may find support in the second half of next year as inventories thin out. For Alcoa specifically, Peterson said it will be tough to make the case for ramping up capacity anytime in the near future given the weak fundaments and high energy and restart costs. Extensions for mining in Western Australia could also be a challenge amid growing dissatisfaction with the company’s footprint there from local activists, he said. Cost pressure could also remain into 2024 given the lower bauxite grade feed for refineries. Peterson held other aluminum calls, keeping Constellium at overweight and Kaiser at neutral. He said Constellium remains his preferred pick in the space because it trades at a discount compared with peers and will likely see capital returns as a theme next year. As a group, Peterson said he remained constructive on aluminum stocks in the long term. — CNBC’s Michael Bloom contributed to this report.
